Manifestos and personal tax - what do we know?

No real surprises in the manifestos from a personal tax perspective with only a few areas to distinguish between the political parties. The key therefore seems to be in what was not in the manifestos, the precise wording of the pledges as well as the statements in the media as we come closer to the general election date.

None of the main parties have committed to either increasing or decreasing the rates of income tax. This is apart from the Reform Party who have pledged a zero basic rate of income tax for frontline NHS and social care for the first 3 years. The Conservative Party have committed to further national insurance cuts to the employed which we were expecting following the direction of travel indicated in the Spring Budget. Cuts to national insurance for the self-employed was more of a surprise given that previous national insurance cuts reduced the tax distortion between the employed and self employed but there is no mention of this in the Conservative Party manifesto.

As you will probably already be aware, the biggest revenue raiser from income tax in recent years has been fiscal drag which has been created by the income tax bands being frozen for a number of years. This means that by simply doing nothing to income tax rates, more tax revenue is raised as more taxpayers are pushed through the bands over the years as earnings increase with inflation.

To counter this, the Liberal Democrats have committed to raising the tax-free personal allowance when the public finances allow. The Reform Party manifesto pledges to increase the tax-free personal allowance to ￡20,000 in the first 100 days which is quite a hike from its current level of ￡12,570. This is always a super expensive tax measure due to the number of people that it could potentially impact so always a difficult change to afford.

So which demographics are being targeted in the manifestos? Labour use the phrase “we will ensure taxes on working people are kept as low as possible” multiple times in their manifesto. The sub-section of working people appears to be carefully chosen and does leave “non-working” people potentially outside the pledge to keep taxes low.

The Conservatives have committed to re-introducing an age-related personal allowance to ensure that the state pension remains tax-free. This is an expensive measure which is shown in the Conservative Party policy costings document as costing ￡8.8bn over the course of the next Parliament – one of the top 2 in the policy costings coming just behind the main NIC cut. The YouGov ‘voting intention’ daily poll on 18 June showed that 32% of voters aged 65 years and over intend to vote Conservative Party which drops to 7% for those under 24 years old. Clearly pensioners are a key demographic for the Conservative party which perhaps makes this expensive measure more understandable.

Young families are also a key demographic which means that child benefit continues to be another hot topic. In the Conservative Party manifesto there is a pledge to move to a household test increasing the threshold from ￡60k per highest earner to ￡120k per household. The Labour Party have not commented in their manifesto on Child Benefit and the Lib Dems have focused on increasing the benefit itself rather than the rate at which it is withdrawn for higher earners.

The main parties are broadly aligned when it comes to non-doms. There is general consensus that the regime will be abolished from 6 April 2025 and replaced with something else. The Labour Party have said that they will “…abolish [the] non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period.” There is a debate about what a short period is – we know that the Conservative Party have put forward 4 years which some feel is too short. The Labour Party have gone further on the non-dom regime stating in their manifesto that they will “… end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here.” This is not new information as this was part of a Labour Party briefing some weeks ago but given the reaction by the affected taxpayers, I did wonder whether the Labour Party manifesto would include a revised ?version with perhaps some grandfathering provisions for existing offshore trusts. It is one of the bigger revenue raisers with a number of ￡5.2bn in the Labour Party’s costings along with the proposed crackdown on tax avoidance but without further details we do not know at this stage what “ending the use of offshore trusts” actually means and therefore who it will impact.

The taxation of carried interest is an area of distinction between the political parties. The Conservative Party manifesto does not mention carried interest whereas the Labour Party’s manifesto states “Private equity is the only industry where performance related pay is treated as capital gains. Labour will close this loophole”. This is a significant revenue raiser with this measure expected to raise over ￡500m in the Labour Party’s costings. An FT article on 18 June provides some further detail with Rachel Reeves signalled that capital gains tax for will remain for private equity where capital is at risk, i.e. co-invest but her expectation may be that most carried interest will be taxed as income under these proposals. This article does also state that there will be a consultation on the reforms which would suggest that these changes will not be enacted immediately if the Labour Party were to form the next government.

There were rumours that inheritance tax (“IHT”) would be one of the big manifesto surprises but the reality is that IHT has not made much of an impact. The Conservative Party has stated their commitment to the IHT reliefs of Agricultural Property Relief and Business Property Relief whereas the Labour Party are silent on IHT altogether (aside from the potential impact on non-doms). The Reform Party has pledged to abolish IHT (or grief tax as they call it) for estates less than ￡2m as well as a cut to the rate of IHT for estates over ￡2m from 40% to 20%. The Green Party has recommended reform of IHT to ensure that assets that are passed between generations are taxed more fairly – no further detail on what sort of reform that they are proposing at this stage.

Capital gains tax (“CGT”) has certainly seen some media coverage over the weekend but in the manifestos themselves there is very little. The Conservative Party manifesto pledges not to increase CGT and to retain principal private residence relief and business asset disposal relief but no other comments. You will recall that the additional rate on residential property was reduced from 28% to 24% in the Spring Budget and the Conservative Party are also suggesting a two-year window for landlords to sell to their tenants free of CGT. The Labour Party manifesto does not mention CGT other than in relation to carried interest. However, over the weekend, Sir Keir Starmer did confirm that they will not remove principal private residence relief but did not go as far as to say that they will not increase CGT rates overall. The Green Party and the Liberal Democrat Party have both suggested reform to the CGT regime with the Lib Dems even calling for the return of indexation allowance.

The Green Party have put forward an annual wealth tax for assets above ￡10m at 1% and 2% on assets above ￡1bn. No detail about which assets are in scope of the wealth tax but with the G20 also looking at a global minimum tax on wealth, this is certainly a topic that I think will continue to crop up over the coming years.

The Labour Party restated their intention to end the VAT exemption on school fees and business rates. Not much further detail on timing or how this would work in practice but a fairly hefty number of ￡1.5bn attached to this measure alone shown in the Labour Party’s costings. Interestingly the Reform Party have offered a 20% tax relief on private school fees.

For individuals the manifestos have not given rise to any surprises and little additional detail on how these measures would be enacted if the various parties came to power. So it is a case of what did the manifestos not say?? There seems to be broad consistency on income tax rates although no specific confirmations on dividend tax or the taxation of rental profits. Some key points to distinguish the parties on non-doms although there is nothing new in the manifestos themselves. IHT was fairly absent from most of the manifestos making it a potential area where it would be possible to make changes without breaking any manifesto pledges. The Conservative Party were alone in making a commitment not to increase the CGT rate. All parties were silent on reducing the tax burden on landlords or investors so it will be interesting to see how this plays through with whoever forms the next UK government. Not long to wait now.