Tax Planning and the General Election
As the General Election approaches on Thursday, 4 July 2024, both the current Government and the leading opposition have published their manifestos. These documents outline their commitments regarding the economy, tax, and spending. With a potential change in government, what key tax considerations should we plan for?
Income Tax
Both Labour and the Conservatives have pledged not to increase taxes. However, neither has confirmed any changes to the tax bands. In recent years, tax bands have remained static, a strategy often described as a stealth tax. This approach results in more people entering higher tax brackets as their income increases, despite the tax bands staying the same.
It is anticipated that both major parties will continue to freeze the Personal Allowance. However, both the Conservatives and Labour have committed to protecting the “triple lock” on pensions. This means the state pension will increase in line with inflation, earnings, or 2.5%, whichever is higher.
Dividend Taxes
Dividend tax, although related to income, may fall outside Labour’s pledge not to increase tax on working people. Most people do not receive income via dividends, which could make this an area where Labour might look to align tax rates with employment taxes. Therefore, it may be wise to consider paying dividends before the election, depending on the availability of reserves in your company.
Capital Gains Tax
There have been few announcements regarding Capital Gains Tax (CGT) rates. However, the disparity between income and capital taxes has been a topic of discussion for many years. There is a risk of future alignment of these tax rates. As such, owners considering a sale transaction should plan in advance to crystallise value before any potential adverse changes in rates.
Additionally, various CGT reliefs could be amended or removed, making the reliefs less generous and increasing the CGT payable.
Pensions
When contributing to a personal pension, the payment attracts relief at the individual’s marginal rate of tax. Higher rate taxpayers benefit from additional relief through their tax return. The removal of higher rate relief has been a topic of discussion for many years, as it is seen to affect fewer working people.
Both major parties have committed to maintaining the “triple lock” on pensions, ensuring state pension increases in line with inflation, earnings, or 2.5%, whichever is higher.
High Income Child Benefit Charge
The Conservatives have proposed replacing the current system with one based on collective household income. Under this regime, families with a combined income below £120,000 will receive child benefit.
Non-Domicile Rules
Labour has pledged to abolish the current non-domiciled rules, replacing them with a residence-based system where tax is based on the time spent in the UK. If Labour wins, they are expected to adopt changes proposed by the Conservatives in the Spring Budget but will not proceed with the 50% relief on foreign income in 2025/26.
Inheritance Tax (IHT)
Detailed plans for IHT have not been shared by the two major parties. This has led to speculation that existing reliefs may be amended, similar to potential changes in CGT.
VAT on School Fees
Labour has proposed introducing VAT on private school fees, which are currently exempt. Private schools currently benefit from not charging VAT due to a legal exemption for eligible education bodies, and many also receive significant reductions on business rates due to their charitable status. Labour has indicated that if they win, anti-avoidance measures will be introduced to prevent pre-payment of fees to avoid this tax.
Looking Forward
Although tax policy is a significant part of both parties’ campaigns, some areas remain strategically omitted from their manifestos. The precise future tax landscape will only become clear after the election results.
For assistance with your tax obligations and strategies, contact Ken or Marie at TC Craigs on (01733) 301226 who produced the original of this blog.
If you would like to discuss financial planning, then get in touch with us at:
info@brookswealth.co.uk 01733 314553 brookswealth.co.uk