Labour’s Tax Plans

Following the Labour Party’s success in the general election last week, the newly elected government is set to implement a series of calculated tax policies which it intends will rebalance the budget deficit and foster economic growth. 

Below we briefly summarise some of the main tax pledges that Labour included in its manifesto and the changes we can expect to see in due course.

Tax Policies

In summary, Labour has announced that it will: 

• Not increase National Insurance, Income Tax, or VAT.  The manifesto was silent on capital gains tax and although Rachel Reeves has stated that Labour has no immediate plans to increase the rate of capital gains tax, a potential rise has not been ruled out during a Labour government’s full parliamentary term.

• Cap corporation tax at the current rate of 25% for the entire parliament

• Retain full expensing and the annual investment allowance

• Abolish ‘non-dom’ status and end the use of offshore trusts to avoid inheritance tax.  For more detail as to what this could mean please see Edward Hayes recent post on this topic

• Close the carried interest ‘loophole’ with the effect that private equity ‘carry’ will cease to be taxed as capital gains.  It is not yet clear how Labour would achieve this although comments from Rachel Reeves following the manifesto launch suggest that capital gains tax may still apply to carry where carry holders put their own capital at risk

• Change the law to tackle tax avoidance, increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC

• Close the ‘loopholes’ in the windfall tax on oil and gas companies, extend the ‘sunset clause’ in the Energy Profits Levy (EPL) until the end of the next parliament, increase the rate of the EPL by 3%, and remove the investment allowances

• Support the implementation of the OECD global minimum rate of corporate taxation

• End the VAT exemption and business rates relief for private schools

• Increase stamp duty on purchases of residential property by non-UK residents by 1%

Labour forecast that these policies will generate an additional £7.35bn of tax revenue whilst closing the current £36bn ‘tax gap’. 

Timing

As to when we can expect these policies to take effect, Labour has not provided any firm indications, however it is unlikely that we will see an emergency Budget akin to the September 2022 mini-budget.  Rachel Reeves has confirmed that Labour will not depart from the convention that the OBR should be given at least 10 weeks’ notice to prepare its economic forecasts prior to the holding of a Budget and hinted at a Budget in late September.  With the King's Speech scheduled to take place on 17 July, practically this means that the earliest date we can expect to see a Labour Budget is 13^th September 2024. 

For further UK tax updates, please visit the Burges Salmon blog.

Co-authored with Pritpal Virdee