With the dust from last week’s general election settling, and Sir Keir Starmer in place as Prime Minister, we consider what we’re likely to see from the new government tax-wise. Given the manifesto and media coverage, what key changes in the next parliament and budget might we see?
Labour committed not to increase NICs, VAT, the basic, higher or additional rates of income tax, or the main rate of corporation tax.
However, the Labour party has been silent on its capital gains tax (CGT) and inheritance tax position. Given media commentary, it looks like there’s a strong possibility of an increase in CGT rates on the horizon.
Note that for a Scottish taxpayer, the income tax payable on your earned income (employment, self-employment, rental and pension income) is devolved to Holyrood. So even though the Labour government at Westminster has promised not to raise income taxes, the SNP government at Holyrood may still do so. (See our short explainer video for further details.)
There is also possibility of tax rates being frozen and not increasing with inflation, leading to ‘fiscal drag’. This is when earnings increase because of inflationary rises, but the tax bands don’t – so more taxpayers reach the band thresholds. If you’re affected by this, you might want to review your position and take advice – for example, consider if donations via gift aid or increased pension contributions would be appropriate to mitigate against this.
Reform of the Non-Domicile regime
Labour in its manifesto said that it would completely reform and abolish the Non Dom Regime. The party was supportive and broadly in agreement with a number of changes announced by the previous Conservative government in their Spring Budget (see our blog on this for further details). But Labour said that they would look to go further and close down some of the “loopholes”.
In particular, Labour announced that they would look to bring foreign assets held in a trust within UK inheritance tax, whenever they were settled, into the scope of the UK system. In addition, potentially no “grandfathering” would be available for offshore trusts which have been previously set up, nor would any transitional relief be available for relief. It’s a matter of ‘watch this space’: it’s likely that further details will be announced in Autumn Budget.
If the new government remains committed to these changes, then it’s likely that they would come into effect from 6 April 2025. Anyone affected by these changes would only have a small window of opportunity to plan ahead and get in their affairs in order.
Remove tax exemptions from private schools, which includes adding VAT to private school fees and ending the relief on business rates.
In addition, on the campaign trail now-Chancellor Rachel Reeves said that anti-forestalling measures would be brought in to prevent parents buying school fees up front to avoid any VAT charge. (See our blog on VAT and school fees for further details on the potential impact that this change could have.)
Increase in the rate of Stamp Duty Land Tax payable by non-residents on the purchase of residential property, with the rate increasing from 2% to 3%.
Despite this, no announcements were made by Labour in its manifesto about changing and reforming the CGT rules for non-residents disposing of UK residential property. (See our guidance for further information regarding the 60 CGT reporting regime for non-residents.)
Labour would close the carried interest ‘loophole’
The manifesto did not set out in detail what changes would be made to the carried interest regime, but it’s likely that any returns received from carried interest would be subject to income tax rather than capital gains tax as is currently the case.
Advice and support
If you have any questions, or think you need to review your position, then please get in contact with us and we would be happy to help.
