Tax and pensions following Labour’s win

As the opinion polls predicted, under Keir Starmer’s leadership, the Labour party claimed victory during the July 2024 general election.

The Labour party manifesto

In their manifesto released back in June, Labour pledged:

• To remove the VAT exemption from private school fees
• To crackdown on tax avoidance and any loopholes. This includes abolishing the non-dom status
• To retain the state pension triple lock
• Not to increase income tax, National Insurance or VAT, along with the headline rate of corporation tax

The manifesto did not, however, provide the finer details relating to these measures. It seems unlikely that we will know the full picture until an Autumn Budget, which is tipped to take place in September. It is possible that in the interim we may instead see reviews launched.

Will there be tax increases under the new Labour government?

In the lead up to the election, an opinion poll showed that 56% of voters expected taxes to increase under a Labour government, and 52% under a Conservative one.¹

That said, it’s unlikely that any new measures would be introduced straight away, as. If previous governments are anything to go by, it’s usually the middle years of the Parliament when the most dramatic changes arise.

In the lead up to the election, capital gains tax, inheritance tax and the tax-preferential treatment of pensions were all present in the speculation around possible targets for raising revenue should a future government run out of money.

Changes that we know about

VAT on private school fees

Labour’s manifesto shows that by applying VAT and business rates to private schools, the new government expects to raise £1.6 billion.

Most private schools will not be able to absorb the additional rates and are likely to cover this by increasing fees. For the 2023/24 academic year, fees already increased by around 8% from the year before.²

While this is likely to cause concern for those with children already attending a private school or those planning to, Rachel Reeves has confirmed that this policy will not be introduced until 2025 and there are actions you can take to help cover the costs.

Tax avoidance and ‘loopholes’

By closing the non-dom tax status and making an investment in reducing tax avoidance, the Labour party expects to raise £5.2 billion. They expect a further £565 million to become available by closing the ‘carried interest loophole’ contained within the private equity sector.

 

The pension lifetime allowance

Despite statements made following the 2023 Spring Budget, Labour appears to have dropped its intention to reinstate the pension lifetime allowance, as this subject wasn’t discussed in the manifesto.

Now, the question on many pension savers’ minds is whether the new government will look into reducing pension tax relief in another way.

Despite the uncertainty, pensions are still currently an extremely tax-efficient way to save for retirement. They are, however, still a form of investment. You should always remember that investments and the income from them can go down as well as up and you may not get back the amount invested.

The state pension triple lock

Labour have confirmed that they will keep the triple lock but not match the Conservatives’ ‘triple lock-plus’ promise. For pensioners, this would have raised the personal income tax allowance, meaning that no one would have paid income tax on the state pension as it increases.

The triple lock means that the state pension (currently £11,502) will eventually exceed the personal income tax allowance. This is currently frozen at £12,570 until 2028. Labour have confirmed that they will keep this freeze in place.

Potential other changes

The Labour manifesto did not contain pledges in a number of areas of taxation, but this does not mean that they will make changes there, or that there won’t be other changes. In the lead-up to the general election, speculation mounted that following a Labour win policymakers could cast an eye over:

• Capital gains tax. It’s well-known that within the Labour party there are advocates for raising capital gains tax. Some have even stated that they would like to see it aligned with income tax rates
• Pension tax relief. While the Conservatives promised that they wouldn’t bring in any new taxes on pensions or increase existing ones, Labour have made no official statement of their intentions either way
• Inheritance tax. Currently, there are a range of inheritance tax exemptions in place. The Conservative manifesto did not mention inheritance and Labour’s only discussed inheritance in relation to the use of offshore trusts for non-doms. In the past, Labour have confirmed that they believe some of the current inheritance tax exemptions and allowances are too generous, so it is possible that changes to these could be on Rachel Reeves’s radar
• Workplace pensions. Labour’s manifesto promised reformation of workplace pensions for the benefit of savers and pensioners but did not detail what form this would take. Although the information was lacking, this does not mean that you should wait until the new government makes an announcement regarding changes to organise and get a handle of your pension savings

How Bestinvest can help you

At Bestinvest, we understand the value of a conversation with an expert who can help you. That’s why we offer free coaching with financial planners. Please bear in mind no personal advice will be given during these sessions. A Coach will highlight considerations and provide expert insight to help you manage your money ranging from your portfolio to retirement planning and taxes, to inheritance tax and annual allowances – and help you plot a path to achieve your financial goals. It’s easy to arrange free coaching whenever suits you, and there’s no ongoing commitment. 

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Sources

¹ Financial Times, UK voters resigned to tax rises despite Tory and Labour assurances, 30 May 2024

² Independent School Council, ISC annual census, May 2024

³ The Conservative and Unionist Party Manifesto 2024 June 2024