After a historic landslide victory, the Labour Party is headed to power after 14 years of a Conservative Government. This article considers the likely key tax policies to be expected from the Labour Party during its term.
Income Tax and Capital Gains Tax (CGT)
The Labour Party has pledged to not raise taxes for ‘working people’ including no change to income tax and national insurance, however, there has been no confirmation regarding other taxes including CGT.
The Chancellor, Rachel Reeves, has said that the Labour Party has no plans to raise CGT, but there is the possibility of increasing the levy during the Labour Government’s full term.
CGT is levied on the profits made on the sale of assets and financial advisors and wealth managers have reported that clients are already starting to take action to sell assets amid the fears of an increased levy. There are also additional concerns that this could discourage investment in the UK.
Value Added Tax (VAT)
The Labour Party has committed to no increase in the rates of VAT, however, there is likely to be an introduction of VAT on private school fees at the standard rate of 20%. This change will apply equally to UK resident parents and non-UK resident parents.
From a practical perspective, this is likely to have a knock-on effect on the state system as it is predicted that more children will leave the private system as a result of the increased fees.
Non-Domicile Regime
Similar to the Conservative Party, the Labour Party intends to abolish the current ‘non-dom regime’ and replace it with a new regime for overseas individuals spending short periods in the UK. The proposals are to move to a residence-based system from 6 April 2025 whereby individuals who move to the UK will not pay tax on their overseas income and gains in their first four years of UK residence. After this period, all worldwide income and gains will be subject to UK taxation.
The Labour Party have indicated that they may consider applying incentives under temporary repatriation relief for non-domiciled individuals to bring their overseas income and gains into the UK although the details of this are yet to be announced.
Whilst the Conservative Party in their initial proposals had indicated a 50% reduction in the first year of the new regime for non-domiciled individuals who are already UK resident in tax years 2025/26, the Labour party proposes to eliminate this relief.
Inheritance Tax (IHT)
Together with the changes to the non-domicile regime, the Labour Party has also proposed to move IHT to a residence-based regime, whereby individuals will be subject to IHT on their worldwide assets after 10 years of UK residence.
The Labour Party also pledges to disapply the IHT tax protection for offshore trusts.
Stamp Duty Land Tax (SDLT)
It is proposed that SDLT will be increased for non-residents. The SDLT surcharge for non-UK residents will be increased to 3%.
Corporation Tax
There are no plans to increase Corporation Tax and to cap the main rate of tax at 25%.
Private Equity Industry
The Labour Party intends to tax private equity carried interest at income rates as ‘employment related’ income.
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