FINAL GPSJ Summer edition 2024 ONLINE VERSION.2pdf - Flipbook - Page 33
CENTRAL GOVERNMENT
GPSJ
TaxGem: What taxes might be impacted
under a Labour government?
By Steph Gemson, Director, TaxGem
With the new Prime Minister in situ at Downing Street, businesses across the UK are keen to know
what this will mean for them. And of course, as accountancy and tax professionals, we are here to
advice our clients with whatever the future holds under a Labour government.
Some of this commentary will
obviously be speculative. However,
we saw many potential tax changes
missed from Labour’s pre-election
manifesto. Was this on purpose?
We will never know. However, what
we can do is consider what the
changes could be and the realities of
those being implemented.
The new PM, Sir Kier Starmer,
has made it clear that his plan for
short-term economic growth is
to stick to strict fiscal rules and
avoid stirring economic unrest. We
therefore believe there will only be
one budget statement per year. The
new Chancellor of the Exchequer,
Rachel Reeves, has indicated
that a Budget would only be held
with the accompanying Office for
Budget Responsibility forecasts,
which requires ten weeks’ notice.
Therefore, a budget before October
is unlikely.
So, what might taxes be impacted?
VAT on private school fees
The new PM has made his plan
to add VAT on private school fees
widely known, which could add
approximately 20% to the price of
private education. I am erring on the
side of caution with this as there is
always the possibility that each of
the services could be separated out
with different VAT treatments instead
of the entire cost, forming part of a
higher single, standard supply.
Business rates for private
schools
Labour’s manifesto includes getting
rid of private schools’ 80% relief
from business rates which could
lead to a further increase in private
school fees if these rising costs
are passed on to parents. Some
private schools may offer an option
for pre-payment before it comes
into place, or perhaps Grandparents
could help with pre-payment as a tax
efficient transfer of wealth to the next
generation.
Income Tax and National
Insurance
Steph Gemson, Director,
TaxGem
Under the Tories, income tax
thresholds were frozen until
2028, and Labour promised not
to raise income tax or national
insurance, although this was
featured in the manifesto. On the
Labour website, they state that
“Labour will not raise taxes on
working people.” We can only
watch and wait.
Capital Gains Tax
Capital Gains Tax (CGT) is an
area of huge contradiction and
speculation. In the summer of
2023, Labour declared that
they did not intend to implement
a wealth tax. However, this
contradicts rumours that have
circulated in the past. For
example, back in 2019, there
were strong indications that
Labour wanted to raise CGT,
and these rumours have certainly
resurfaced in recent months that
this may actually be on the cards.
Pension review
For state pensions, Labour will
maintain the state pension triple lock;
however, it is no secret that Labour
is committed to a pension review for
private pensions. Some believe that
this could be a positive thing as their
manifesto declared that they would
“deliver better returns for savers” and
“improve security in retirement.”
However, this may not be such
happy news from a tax perspective,
as it is possible to make tax relief
on pensions less favourable.
Chancellor Rachel Reeves had
previously stated that there should
be changes to tax relief on pension
contributions, providing a flat rate
of relief for everyone. This would be
incredibly challenging on the benefit
of providing income to a pension for
higher and additional rate taxpayers.
However, it is understood that there
has been a change of heart on this.
Inheritance Tax
In the UK, we already pay one of
the highest rates of inheritance tax,
40% above the nil rate band. It is
currently set at £325k per person,
with an additional £175k main
residence relief for those who leave
their home to direct descendants
when they die.
There have been rumours of an
Inheritance Tax raid where these
bands could change, thus making
more people eligible for the 40% tax
on their death estate.
Non-Dom Tax
Labour has been very clear of their
intention to get rid of the non-dom
tax status, which encourages
wealthy foreign individuals to
become UK residents but to keep
overseas asserts and income
outside of the charges on UK taxes,
unless remitted in the UK.
In the Spring 2024 Budget, the
Conservatives implemented rules to
replace the concept of domicile and
its UK tax benefits with new rules,
which last just four years instead of
15. There is also a transitional rule
for existing tax residents who have
already been in the UK for more than
four years, providing a temporary
50% reduction in the foreign income
subject to UK tax for 2025/6.
However, Labour has said that they
intend to “close down this loophole”.
Conclusion
As we said at the beginning, much
of this is speculative, so we are
preparing ourselves to help our
clients when we hear what the
Chancellor has to say in a potential
Autumn Budget.
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