Tony Wickenden: Labour and Tory tax policies – what we know

While parliament did its best to enjoy a summer recess, parliamentary stories abound, with Brexit remaining a reliably common theme

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Sep 12, 2019
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Financial planners are sure to be being asked by clients with increasing frequency what, if anything, to build into their financial plans to anticipate the tax plans and potential tax regimes of the two main political parties.

You will not be surprised that a compare and contrast exercise delivers a very stark comparison of the tax plans of the two main parties.  Essentially, low tax and stimulation on the right-hand side and high tax and redistribution on the left.

The details

It’s fair to say we have a little more to draw on in relation to what tax might look like under a government led by Labour leader Jeremy Corbyn and shadow chancellor John McDonnell than under the current team of prime minister Boris Johnson and chancellor Sajid Javid. A possible Budget in early October (the week commencing 7 October according to Johnson’s adviser Dominic Cummings) would help provide some clarity of course.

But we are not in October. So, what do we know now?

Conservatives

Most of what we know about the intentions of the new prime minister and chancellor were gleaned during the leadership campaign. However, recently the chancellor was quoted as wanting a simpler, low-tax regime and described himself as a “low-tax guy” when setting out the economic agenda for the new government. It may be the new PM and chancellor borrow some of the ideas put forward by the other contenders. For example, Jeremy Hunt’s proposal to drop corporation tax to 12.5 per cent or Conservative MP Rory Stewart’s more radical ideas for the simplification and modernisation of the UK tax system. And, of course, imitation is the most sincere form of flattery.  So, don’t expect the PM to be building any Theresa May impressions into his speeches.

Income tax:

Higher rate threshold up to £80,000 from £50,000.

The current income tax bands provide that the basic rate of 20 per cent is paid on taxable income between £12,500 and £50,000, the higher rate of 40 per cent is charged on taxable income between £50,000 and £150,000, and the 45 per cent additional rate above that. So, as a consequence of pushing up the higher rate threshold to £80,000, taxpayers earning between £50,000 and £80,000 would become basic rate taxpayers with the benefit of the personal allowance.

It is unclear whether the personal allowance withdrawal once you reach £100,000 of income would be retained.

Let’s remember though, these were just based on campaign ideas and so, even if the principle is adhered to and implemented, the detail would need to be worked out. The chancellor has also recently sounded a note of caution over taxation reductions stating, “If you are going to have tax cuts, I think you should always be thinking about the lowest paid, and about how you can try and help them.”

National Insurance:

The NI upper earnings limit is aligned to the higher rate income tax threshold so if that went up to £80,000 there would be an increase in NI payments for some.

The PM indicated he would like to consider an increase in the threshold above which NI becomes payable from its current £8,632.

Corporation tax:

There have been general comments about the benefit of lowering the rate, but no specific figures given. It would seem self-evident that a low corporation tax rate would contribute to the attraction of a country in which a business could be based.

Capital allowances:

Consideration has been given to increasing the annual investment allowance available on expenditure on plant and machinery from its current level of £1m. Jeremy Hunt proposed £5m. The aim, like reduced corporation tax, would be to stimulate and attract businesses.

Stamp duty land tax:

Stamp duty land tax is stated to be absurdly high for residential properties and the paper on reforming stamp duty by Onward on 22 July proposes the abolition of charges for residential properties worth less than £500,000. The chancellor, repeating what the PM said during his leadership campaign, initially seemed to talk about looking at switching the responsibility for SDLT from the buyer to the seller but without giving any further detail. But just a little later in the day tweeted, “More speculation about stamp duty this morning. To be clear, I never said to @thetimes I was planning to put it on sellers, and I wouldn’t support that. I know from @mhclg that we need bold measures on housing – but this isn’t one of them.”

Other taxes:

We have nothing specific on capital gains tax. On inheritance tax, if we retain a Conservative government one would expect the second set of proposals made by the Office of Tax Simplification to be seriously considered. The proposals included a simplification and streamlining of the annual exemptions, alignment of the CGT and IHT definitions of trading , simplification of the rules on who bears the tax , a reduced cumulation period of five years and the abolition of the 14-year rule in relation to gifts.

One would certainly not expect a Conservative government to be anywhere near introducing a wealth tax or any form of capital or exchange controls – inside the EU or outside. 

Labour

The key underpin is perhaps McDonnell’s statement in an interview given to the Observer that his objective in relation to economic and tax policies is to deliver an “irreversible shift in wealth and power in favour of working people”.  So, tax policy will have a strongly redistributing driver.

Income tax:

The 2017 manifesto proposed an increase in income tax rates that would see a 45 per cent rate on taxable income over £80,000 and a 50 per cent rate for taxable income over £123,000.  There would be no increases for those earning less than £80,000 pa and an excessive pay levy (paid by the employer) of 2.5 per cent for staff earning over £300,000 and 5 per cent for those earning over £500,000 to reduce pay inequality.

Corporation tax:

An increase in the rate to 26 per cent and the reintroduction of the small companies’ rate of 21 per cent.

Tax avoidance:

Expanding the general anti-abuse rule to make it cover avoidance – and with higher, more wide-ranging conditions.

There is also a proposal to introduce greater transparency with large company tax returns and related documentation being available for scrutiny.

Financial sector tax proposals:

Basically, to introduce a FTT – or financial transactions tax – to radically enlarge the scope of UK stamp duty.

Land tax:

The Land for the Many report commissioned by Labour proposes a radical increase to the tax on property to replace council tax and linked to real values.

Inheritance tax:

An abolition may be on the cards, with its replacement by a lifetime gifts tax, essentially changing the tax from being a donor-based tax to being a donee-based tax with gifts (over a £125,000 per donee nil rate) being taxed at income tax rates.

The Land for the Many report suggests this, as does an Institute for Public Policy Research report.  This would make the tax, in principle, not unlike the Irish capital acquisitions tax.

Wealth tax and capital controls:

It’s arguable that, altogether, tax on property represents a form of wealth tax on a particular asset type.

In January this year the shadow chancellor said clearly he had no intention of introducing capital controls.

Now all of the above, while being more than pure conjecture, is merely a summary of what could come to pass based on an accumulation of statements, past manifestos and various reports.

What to do now?  It’s a highly subjective challenge but – at the very least – reconsider any unused reliefs, allowances, exemptions and legitimate planning opportunities that are available to you currently.

Tony Wickenden is joint managing director of Technical Connection (a St James’s Place Wealth Management group company)



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