Just one day remains until the UK holds its third election of the last five years, and if recent history has taught us anything, it is that political upset is never off the cards.
Brexit may be the hotly contested issue, but the various party manifestos boast a host of promises on a far wider range of matters. The result remaining elusive, it is worth considering the potential impact of any proposed tax changes for individuals.
The Labour Manifesto
The Labour manifesto has been described as a return to the traditional ‘tax and spend’ foothold of the Labour party. It certainly proposes the biggest changes to the current tax position, in order to fund a comprehensive spending plan.
Perhaps the most pressing change for those in Scotland is the proposed changes to the Capital Gains Tax (CGT) regime. This would see capital gains taxed at the same rate as income (leading to a potential increase in rates from 20% to 50% in some cases).
This is coupled with a proposal that the annual exemption be reduced from £12,000 to £1,000. Entrepreneur’s Relief (which allows those selling business assets to pay a reduced rate of CGT) would similarly be abolished we are told, with a view to considering some form of replacement. Given that these plans may be implemented in the first Labour Budget, this may encourage some individuals to make certain moves (for example, using their annual exemption) earlier than otherwise planned.
The Labour party has also proposed significant changes to income tax. For earnings over £80,000, Labour proposes introducing a 45p rate of Income Tax, rising to 50p for incomes over £125,000. Below that, income tax rates would be frozen.
In theory, these changes will not directly apply in Scotland to ‘non-savings income’ as the Scottish Parliament sets rates of income for this type of income. However, it may be imagined that if rates increase in England and Wales, similar rates may be applied in Scotland.
There are, however, elements of the proposed changes that would directly apply in Scotland.
Firstly, the new rates would apply to other forms of income, including savings income and dividend income, (the proposal being that separate rates for dividends be abolished). The Marriage Allowance (which allows those earning below the Personal Allowance threshold to transfer £1,250 of their own Personal Allowance to a higher earning spouse) would also be scrapped. Meanwhile, National Insurance contributions are to be frozen.
For those concerned with succession planning, it is worth noting that Labour proposes to reverse the introduction of the Residence Nil Rate Band. This allows parents to pass eligible property to their children tax free, up to a value of £300,000 per couple (rising to £350,000 in 2020/21 under the current rules). This may give individuals cause to reconsider any current succession plans.
A further ‘root and branch’ review of the inheritance tax (IHT) regime is to be expected under a Labour government, with some previous, more radical, proposals put forward pre-manifesto discussed here.
The Conservative Manifesto
The Conservative manifesto likewise proposes some tax changes that may be of note to individuals.
Travelling in rather a different direction, the Conservative Party proposes increasing the National Insurance Primary Threshold to £9,500, with the eventual aim of raising that figure to £12,500. For working people, this will lead to an overall tax saving.
The Conservatives also propose a ‘triple lock’- meaning no increases to National Insurance, Income Tax or VAT. While they do not propose any increases to CGT, with no firm commitment on maintaining present rates, an increase cannot be ruled out.
Either way, the manifesto promises a ‘review’ of Entrepreneur’s Relief and commentators are seeing that as an indication that it may be removed or at least fundamentally reformed.
Despite hints from Sajid Javid that scrapping IHT altogether may be on the cards, the Conservative manifesto makes no comment on IHT or any related exemptions/reliefs.
Nonetheless, we may expect to see some reform in light of the Office for Tax Simplification report on IHT, requested by the Conservative government, the key proposals of which are discussed here.
A Kingmaker?
If neither party manages to obtain a firm majority, they may form a coalition, or a minority government relying on the support of a smaller party. It is therefore worth considering briefly the policies of those smaller parties that Labour or the Conservatives may find themselves negotiating with post-election.
The Liberal Democrats propose similar measures to those of Labour in respect of CGT, scrapping the annual exemption and taxing gains as income (set against a personal allowance applicable for both income and capital gains).
They also propose increases to Income Tax in the amount of a 1p rise on the basic, higher and additional rates. As with Labour’s proposals, such increases would have direct affect only partially in Scotland.
They similarly support the abolition of the Marriage Allowance. They make no comment on National Insurance, or Inheritance Tax.
The SNP may also be a party that Labour looks to for support. The SNP does not outline specific tax proposals but refers to the tax reforms it has implemented in respect of Income Tax in Scotland to outline its overall commitment to tax reform and opposition to the current Conservative strategy.
Tax-i for Corbyn/Boris?
Regardless of whether the British public choose to send Boris on his bike or back to Brussels, many remain sceptical of the ability of any party to stick to its manifesto promises, given significant spending commitments.
Nonetheless, it is evident that with the potential for big change in the near future, it is always advisable to take advice as early as possible, to ensure the best available outcome.