Policy & Law
The future of tax in the UK – General election 2024
With much commentary focused on the timing of Rishi Sunak’s announcement of the General Election - to be held on 4th July 2024, the purpose of this article is to take stock of what we know of the two main parties’ tax policies and to provide a brief UK economic update.
Subsequent to the release of the previous article, this note is based on: (i) the election manifestos of each of the two main parties, (ii) the 2024 Spring Budget, (iii) press releases, and (iv) speeches and/or interviews given by members of each of the respective parties.
The summary below is subject to change as more detail becomes available.
Update – Manifesto Announcements
The Conservative Party and the Labour Party have each released their election manifestos. As expected, neither manifesto contains any surprises but rather provides additional context on the tax and spend policies previously set out. Based on the published manifestos, we have detailed below our understanding of the key tax policies of each of the Conservative Party and the Labour Party.
‘Non-Dom’ tax regime
The Conservative Party manifesto is silent on the proposed reforms to the non-dom regime. As such no additional information is available in addition to that set out in the following section of this article.
The Labour Party re-affirmed their commitment to “abolish non-dom status …. replacing it with a modern scheme for people genuinely in the country for a short period”1. It is important to note that the Labour Party manifesto does not define what a short period means, and this will undoubtedly be a crucial point to understand following the release of draft legislation and additional guidance.
The Labour Party have also confirmed that should they win the General Election 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”. Labour do not comment on the proposed10-year Inheritance Tax rule that was initially proposed by the Conservative government at the Spring Budget 2024.
Income Tax and National Insurance
The Conservative Party manifesto pledges to “cut tax for working people”; not raising the rate of Income Tax and reducing National Insurance by 2p resulting in National Insurance being reduced to 6% by April 20272. The manifesto goes one step further for self-employed individuals stating the intention to abolish the “main rate of self-employed National Insurance” by the end of the next parliament.
The tax-free allowance for pensioners will be increased in line with inflation such that the state pension should not be subject to income tax.
The Labour Party have pledged not to “increase taxes on working people, … not increase National Insurance, [nor] the basic, higher or additional rates of Income Tax”.
Capital Gains Tax
The Conservative Party manifesto pledges not to increase Capital Gains Tax. In addition, the manifesto pledges to retain multiple reliefs including; Enterprise Investment Scheme, Seed Enterprise Investment Scheme, Venture Capital Trusts and Business Asset Disposal Relief. Further, landlords selling their property to their tenants will receive a 2-year relief from CGT.
The Labour Party manifesto is broadly silent on Capital Gains Tax and importantly it is the only direct tax that they have not commented on. With regards to Private Equity principals, the manifesto pledges to close the carried interest ‘loophole’ where “performance related pay is treated as capital gains”. The Labour Party have not identified what the new rate will be and “some Labour insiders say a compromise between 28 per cent and 45 percent could be found”3.
Inheritance Tax
The Conservative Party have pledged to retain Agricultural Property Relief and Business Relief, such that the passing of agricultural land and businesses to the next generation will continue to be free from IHT. It remains understood that a consultation on IHT will be delivered over the summer – as part of the non-dom reforms. This consultation may explore further changes to IHT in due course.
Absent the non-dom reforms, the Labour Party’s manifesto is silent on IHT.
VAT
The Conservative Party’s manifesto has pledged to freeze the rate of VAT and to increase the VAT registration threshold to £90,000.
As with Income Tax and National Insurance, the Labour Party manifesto pledges not to increase VAT. Labour will however “end the VAT exemption and business rates relief for private schools”. They commit to use the funds raised as a result of this policy change to invest in the state school sector.
Stamp Duty / Stamp Duty Land Tax
The Conservative Party propose to abolish Stamp Duty Land Tax for homes up to £425,000 for first time buyers.
The Labour manifesto pledges to increase the Stamp Duty surcharge paid by non-UK residents by a further 1%.
Corporation Tax
The Conservative Party have pledged not to raise Corporation Tax. The Labour Party manifesto is aligned with this policy and propose to cap corporation tax at the current level of 25 per cent for the entire parliament.
‘Non-Dom’ Tax regime
At the 2024 Spring Budget, the Conservative Party announced the abolition of the non-UK domicile regime and proposed the introduction of a new residence-based regime (commonly referred to as the FIG regime) from 6 April 2025. We summarised the key points to note here: https://privatebank.jpmorgan.com/eur/en/insights/wealth-planning/spring-budget-2024-the-end-of-the-non-dom-regime
The Labour Party have announced that it is their intention to broadly adopt the current proposals save for closing certain ‘loopholes’ pertaining to the ongoing taxation of offshore trusts4. In particular, the Labour Party have announced that it is their intention to (i) abolish the proposed transitional reliefs and (ii) for assets in offshore trusts to cease to benefit from the ‘excluded property’ regime and therefore be subject to inheritance tax (IHT) with returns being subject to income tax and capital gains tax. It is anticipated that further detail should be provided during the course of the election campaign.
We will provide a further update on the expected timeline for these reforms in due course.
Income Tax & National Insurance
To date Labour’s stance has been that they will not seek to raise either income tax or National Insurance. In writing for the Daily Mail in May 2024 Rachel Reeves, the shadow Chancellor of the Exchequer, commented that “ I do not believe you can tax and spend your way to growth, and I didn't come into politics to raise taxes on working people.”5
The Conservative Party emphasized their ambition to abolish National Insurance with cuts announced at both the 2023 Autumn Statement and 2024 Spring Budget. Gareth Davies, Exchequer Secretary to the Treasury commented that this ambition would likely take “several decades” 6 to achieve. As such, whilst further reductions to the National Insurance rates may be announced the tax is unlikely to be abolished in its entirety.
It is not expected that the Conservative Party will announce reforms to income tax instead favouring a reduction to National Insurance.
Capital Gains Tax
It is not anticipated that either party will propose any changes to the headline rate of capital gains tax. In March 2023, Rachel Reeves stated on the Today programme that ‘I don’t have any plans to increase capital gains tax’.7 That being said, the party’s deputy leader Angela Rayner has criticised the way in which capital gains tax applies.8
At present, subject to the application of certain anti-avoidance provisions, carried interest distributions received by private equity executives are subject to taxation as capital gains at a rate of up to 28%. It is currently understood that reforming the taxation of carried interest is not a policy objective for the Conservative Party.
Conversely, the current Labour Party have on multiple occasions stated their desire to change ‘the way in which carried interest for private equity firms are taxed’9. No details of their proposed reforms have been shared however the Labour Party estimate that an additional £500m of tax revenue would be realised10.
Inheritance Tax
In the run-up to the 2024 Spring Budget it had been rumoured that the Conservative Party would introduce cuts to IHT. Jeremy Hunt has even gone so far to as describe inheritance tax as “pernicious” and “profoundly anti-Conservative”11. It does however remain to be seen whether the Conservative Party will include any changes to IHT in their manifesto.
The Labour Party leader Sir Kier Starmer has stated that he is “fundamentally opposed”12 to any such cut. Prior to the 2024 Spring Budget the Labour Party advised that they would seek to reverse any cut to IHT introduced by a Conservative Party.
VAT
A key Labour Party policy is the introduction of VAT for private school fees13. Speaking at the Labour Conference in October 2023 the Shadow Chancellor of the Exchequer Rachel Reeves commented that “In my first budget as Chancellor I will end the tax loophole which exempts private schools from VAT and business rates”. The Labour Party have estimated that this policy could raise an additional £1.7 billion per year14. It is understood that the Conservative Party are opposed to the proposal.
Stamp Duty / Stamp Duty Land Tax
In 2023 the Labour Party announced their intention to increase the existing 3% surcharge for overseas buyers acquiring UK property. The proposed increase has not been confirmed and has received little attention. This would impact “foreign individuals, trusts and companies when they buy UK residential property”15.
In the 2024 Spring Budget, the government extended SDLT reliefs for Registered Social Landlords and first-time property buyers and abolished Multiple Dwellings Relief16. It is not clear as to whether the Conservative Party will propose any further amendments to SDLT as part of their election manifesto.
Wealth Tax and Mansion Tax
It has been mooted that the Labour Party could introduce either a Wealth Tax or Mansion Tax. Rachel Reeves has been unequivocal in her response and has confirmed that “she will not target expensive houses”17 and that the Labour Party “have no plans for a wealth tax”.18 It is also understood that the introduction of these taxes is not a Conservative Party policy however this has not been formally confirmed.
Economic update
Barring a major surprise, we do not expect the outcome of the election to alter the path for UK economy or for UK-related assets.
The muted market reaction to the announcement shows us that the direction of travel in the coming months will be driven more by economic developments than they will be by political risks.
On the whole, we agree with Rishi Sunak’s assessment that the economic picture has been improving. After the mix of growth and inflation was challenged by the ripple effects of the pandemic and energy price shock, there are signs that things are coming into better balance. That has caused the Bank of England to signal the potential for interest rates to be lowered at one of their upcoming meetings.
However, this week’s inflation figures show that won’t be an easy feat for the central bank, and we don’t expect to see the first interest rate cut until the end of the summer – after the General Election takes place. Higher interest rates make it more expensive for the government to borrow and spend money. And after the Conservative party left little room to work with after their national insurance cut back in March, we would expect the winner of the election to enter a period of fiscal consolidation (i.e. less spending or higher taxes).
The good news is that should help the Bank of England in their efforts to keep prices contained. Whether it is a Labour or a Conservative victory, less expansive spending plans should support the outlook for interest rate cuts over the coming years. In our view, that makes today’s yield levels attractive in UK fixed income – particularly for UK taxpayers. Meanwhile, a tighter policy stance might limit the strength of the pound over the near-term, but we expect the outlook to turn more positive for sterling as the global economy rebounds towards the end of this year.
For stocks in the UK, the message is likely to be more nuanced. While certain Labour policies might be net-negative for sectors like Energy, Transportation and Utilities, there are other pockets of the market like Banks, Home Builders and Healthcare that should benefit. On the whole though, we think that there are certain parts of the UK market that offer attractive diversification benefits for portfolios given their high dividend yields and low correlation to other global markets.
1 https://labour.org.uk/change/my-plan-for-change/
2 https://public.conservatives.com/static/documents/GE2024/Conservative-Manifesto-GE2024.pdf
4 https://labour.org.uk/updates/press-releases/reeves-i-will-take-on-the-tax-dodgers-to-fund-our-nhs/
5 https://www.dailymail.co.uk/debate/article-13457721/Shadow-Chancellor-Rachel-Reeves-Britain-Labour-money.html
6 https://news.sky.com/story/abolishing-national-insurance-could-take-several-parliaments-minister-admits-13089734
7 https://www.bbc.com/news/uk-politics-65122284?secureweb=Teams
8 https://www.bbc.com/news/uk-politics-65122284?secureweb=Teams
9 https://assets.publishing.service.gov.uk/media/65e9d03a5b65240011f21bc6/240223_Opposition_costing_-_Carried_Interest_FINAL.pdf
10 https://www.theguardian.com/politics/2021/sep/19/labour-plans-to-raise-500m-by-closing-fund-managers-tax-loophole
11 https://www.telegraph.co.uk/business/2024/05/24/uk-general-election-jeremy-hunt-inheritance-tax-unfair/
12 https://labourlist.org/2024/03/budget-2024-labour-must-hold-firm-in-opposing-rumoured-inheritance-tax-cut/
13 https://labour.org.uk/updates/press-releases/rachel-reeves-speech-at-labour-conference/
14 https://www.bbc.com/news/uk-england-essex-67487136
15 https://labour.org.uk/document/npf-final-policy-document-2023/
16 https://www.gov.uk/government/publications/spring-budget-2024/spring-budget-2024-html
17 https://www.bbc.com/news/uk-politics-66634187
18 https://www.theguardian.com/politics/2023/aug/27/rachel-reeves-rules-out-wealth-tax-if-labour-wins-next-election
A comparison of the two main parties’ tax policies & a UK economic update
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