Overview of Labour’s Tax Agenda
The recent general election on 4th July saw the Labour Party securing a significant majority, ending 14 years of Conservative governance. With the new government in place, several tax changes are on the horizon. Here’s a detailed look at what small businesses can expect.
Potential Capital Gains Tax Changes
While Labour has not made specific announcements about changes to capital gains tax (CGT), they have not ruled out the possibility of adjustments. Businesses and investors should stay alert for potential updates.
VAT on Private School Fees
A major policy from Labour is to impose VAT on private school fees, increasing costs for parents. There are attempts by some parents to pre-pay fees at the current rate to avoid the tax hike, but Labour plans to close this loophole.
Stamp Duty Land Tax Increase
For non-UK residents, the stamp duty land tax (SDLT) surcharge on property purchases will increase from 2% to 3%.
Reforms to Non-Dom Tax Status
Labour plans to overhaul the non-domiciled tax regime, aiming to close loopholes that allow the wealthy to avoid taxes. Expect significant legislative changes in this area during this parliament.
Income Tax Adjustments
Labour has pledged not to raise income tax rates. However, they will keep income tax bands frozen until April 2028. This means that as inflation and wages increase, more people will be pushed into higher tax brackets, effectively increasing the tax burden over time.
A notable change affects private equity fund managers, who are typically compensated through ‘carried interest’, currently subject to capital gains tax. The new Chancellor, Rachel Reeves, has announced that carried interest will be taxed as income unless the managers have invested their own capital, resulting in higher taxes for these managers.
National Insurance and VAT Stability
Labour has committed to maintaining the current national insurance and VAT rates throughout this parliament, providing some stability for businesses in these areas.
Inheritance Tax Adjustments
While Labour has not made extensive comments on inheritance tax, they plan to eliminate the use of offshore trusts for tax avoidance, ensuring all residents pay their fair share.
Extended Windfall Tax on Energy Profits
Labour will extend the energy profits levy until the end of this parliament, increasing the rate by three percentage points and removing certain investment allowances deemed overly generous.
Measures Against Tax Avoidance
Labour intends to clamp down on tax avoidance by increasing HMRC compliance staff and exploring legal deterrents to tax evasion.
Business Tax Framework
Although detailed plans for business tax changes are yet to be published, Labour has pledged to cap corporation tax at 25% for the duration of this parliament. They will also release a comprehensive roadmap for business taxation, providing clarity on future policies.
Summary
Labour’s tax plans offer some predictability but also introduce significant changes for certain groups, especially those involved with private schools, private equity, or who have non-dom status. Businesses should remain vigilant and seek professional tax planning advice to navigate these changes effectively.
For personalised tax planning assistance, contact our expert team today.