Election results: What does it mean for the UK tax system?

by | Jul 9, 2024

So, the election results are in and the Labour party won the country’s mandate to form a new parliament.

A recurring topic of discussion and disagreement in the run up to the election was that of tax, both for businesses and individuals, and whilst we are thin on detail, we have to expect some changes in our tax system over the next few years.

Following the election results – Will there be an emergency budget?

Labour will likely set out their initial plans in an ‘emergency’ budget. This is unlikely to happen before September or October as the Office of Budget Responsibility (OBR) will need 10 weeks to prepare independent forecasts on the plans.

Of interest will be how many of the proposals and changes that were introduced in Jeremy Hunts budget of March this year will be taken forward and implemented by the new government, for example,  the proposed abolition of the Furnished Holiday Let Rules which was intended to take effect from 5 April 2025 but over which we have no detail as yet.

Further details will no doubt emerge over coming weeks, but here’s a review of some of the main tax areas based on their manifesto.

Income tax changes

  • No increase to income tax rates.
  • A Pension review is
  • No mention has been made about the income tax-free allowance which has been kept at the same level since 2021.

National Insurance Contributions (NIC)

  • A promise has been made not to increase national insurance .

Business tax

  • A roadmap for business taxation will be published in coming weeks with a commitment to capping corporation tax at 25% for the entire parliament.
  • Full expensing and the Annual Investment Allowance will be kept for small businesses with a promise of further clarity on what investments qualify for capital allowances.

VAT

  • No increase to the VAT rate.
  • VAT will be applied to private school fees.

Capital Gains Tax (CGT)

  • Nothing has been specifically mentioned on CGT rates or reliefs.
  • The ‘carried interest tax loophole’ will be closed. This mainly affects private equity executives who receive a stake in the funds they manage rather than traditional remuneration.

Inheritance tax (IHT)

  • No expected changes to current rates or reliefs.
  • The use of offshore trusts to avoid inheritance tax will be ended.

Stamp duty land tax (SDLT)

  • The existing surcharge on purchases of residential property by non-UK residents will increase from 2% to 3%.
  • Perhaps this hints that further down the line there will be increases for UK residents too.

 

Closing the tax gap

Alongside the manifesto labour published a document on their plans to close the “tax gap”  being the difference between the amount of tax that is owed and the amount that is collected.  Addressing this will be fundamental to raising the funds required to deliver many of the manifesto promises.  We expect HMRC to be encouraged to take a harder line in many areas and we may find going forward a more combative approach.

Our View

For many years budget changes have been mainly fiddling around the edges, more a death by a thousand cuts rather than any widespread taxation reform.  There are many areas of our tax system which are illogical and/or outdated and its certainly overly complex.  Addressing these areas is challenging however as we saw in the fallout from the not overly drastic change to tax rates in the budget under Liz Truss.  It is likely that tax law will continue to be driven partially by public opinion and not always by effective long-term policies, we may be proved wrong, but we don’t, at least immediately, expect any major changes.

If however any of the proposed changes are likely to affect you in any way, please contact us and we will be pleased to give you personalised advice. As your tax advisers, we will continue to keep you up-to-date on tax changes so that you can plan your affairs to minimise paying tax.

If you have any questions about the election results will affect you, contact our Tax Director, Mary Tierney. 

 

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