Following the Labour Party’s decisive victory in July’s election, the UK’s new government has outlined its tax policy direction, with a particular focus on stability and fairness. Here is a summary of the anticipated changes.
Income Tax, National Insurance and VAT
Labour has said that they do not plan on increasing the rates of income tax, National Insurance Contributions, or VAT. This means that there will be no immediate changes to the basic, higher, or additional rates of income tax, nor will there be increases in NIC rates. However, the government has since explained that the Conservative government left the UK economy worse than initially expected. According to some reports, there could be a ‘black hole’ as large as £20 billion in public finances. Some feel that this will lead to tax hikes.
What Can We Expect In Rachel Reeves’ Autumn Budget?
Chancellor of the Exchequer Rachel Reeves is expected to present her first Budget in the autumn. While the specifics are yet to be fully disclosed, the following may be included:
- Increased private school fees: Labour has claimed in the past that it would add VAT to private school fees to provide funding for teachers in state schools.
- State pension triple lock: Each April, the state pension amount will rise in line with inflation, average earnings or 2.5 percent.
- Pension review: Pensions are an area of key focus for Labour; the Pension Schemes Bill was introduced shortly after the King’s Speech earlier this year. There is some speculation as to whether Reeves will change how pensions are taxed to help fund the shortfall in public finances.
- Freedom to Buy: Labour has pledged to help 80,000 people get on the property ladder within the next 5 years by making the current mortgage guarantee scheme permanent.
- Stamp duty: The stamp duty exemption threshold for first time buyers is believed to drop to £300,000. It was raised to £425,000 in September 2022.
- Removal of non-dom status: Labour has long made it clear that they will crack down on tax avoidance and plan to abolish non-dom status. The existing benefits enjoyed by non-doms are very likely to be phased out, which could result in non-doms facing full taxation.
- Capital gains and inheritance tax: Although Labour has insisted that they will not raise taxes on working people, there are seemingly no plans not to raise capital gains and inheritance tax.
The new Labour government’s tax policy seemingly aims to maintain a stable tax environment and address perceived unfairness. Although income tax, NIC and VAT rates should remain the same, there will be significant adjustments made in the future, particularly regarding non-doms. Rachel Reeve’s autumn budget will offer more details and lay the groundwork for Labour’s plans for the years ahead.
