General election 2019: What could this mean for private tax?
This briefing provides a factual summary on the tax aspects of the manifestos published by the Conservative and Labour parties in relation to the upcoming general election on 12 December.
The Conservative Party published their election manifesto on 24 November. It contains few proposed changes to the UK tax landscape, other than introducing a stamp duty surcharge on non-UK resident buyers. Instead, it mainly focuses on tax avoidance and evasion measures.
The Labour Party's manifesto, which was published on 21 November plans significant changes to the UK tax landscape, including many changes targeted at property and business owners. As well as the manifesto, we can also glean an idea of the party's wider aspirations from a report entitled "Land for the Many" which was published in the summer.
This briefing is not intended to provide speculation on the proposals within the manifestos or on the implementation of the proposals in the event that a coalition or minority government is formed in the general election.
Conservatives: The Conservatives have committed to a "Triple Tax Lock"; a promise not to increase the rates of income tax, National Insurance and VAT throughout the next Parliament. Conspicuously absent from that list is Capital Gains Tax, which may indicate future tax rises.
The largest tax cut involves raising the National Insurance threshold to £9,500 in April 2020, which represents a tax cut for 31 million UK employees.
The Conservatives intend to freeze VAT rates, currently at 20% for the majority of goods and services, but they pledge to scrap the 5% rate payable on sanitary products. Relevant to foreign nationals, the Conservatives plan to raise the health immigration surcharge to £625 (normally up to £400 per year) which they propose will be payable by EEA nationals too.
Labour: Labour plans to introduce a new 45% income tax rate for those earning £80,000 a year or more and a new 50% rate starting at £125,000 from 2020 to 2021. Meanwhile, it plans to freeze National Insurance and income tax rates for individuals earning less than £80,000. Currently, 45% is the top rate of income tax, which currently kicks in at an income of £150,000 per year. People earning less than £80,000 account for around 95% of taxpayers (according to 2016/17 figures from HMRC). However, this does not mean that Labour intends on no tax rises for these individuals. For example, although not within the manifesto, Labour proposes to scrap marriage allowance, which gives a tax break to couples with a combined income of under £62,500 (although Labour seeks to defend this change on the grounds that the current tax break is unfair to co-habiting couples).
Labour also proposes to tax wealth more heavily. The party has pledged to reverse cuts to inheritance tax made by the Conservatives in 2017, which currently allow people to pass on an amount of residential property tax-free to their children or grandchildren, in addition to the existing £325,000 tax free allowance. The effect of this for a married couple would be a reduction in the amount they can leave tax-free to their children on death, from up to £950,000 currently, down to £650,000.
Finally, Labour also intends to reverse the recent reductions in Capital Gains Tax so that the current 10% rate would revert back to 18% and the 20% rate back to 28%.
Conservatives: The Conservatives pledge to maintain the corporation tax rate at 19%, raise the R&D tax credit rate (a government incentive designed to reward UK companies for investing in innovation) and reduce business tax rates for certain small businesses. The government had originally legislated to reduce corporation tax from 19% to 17% next year, but in their manifesto they pledge to scrap the planned cut citing the need to fund public services and notably the National Health Service. The Conservatives are therefore proposing £7billion of corporation tax rises by 2023 to 2024.
They also intend to increase the tax credit rate for R&D from 12% to 13% and review the definition of R&D. They have also pledged to review and reform entrepreneur's relief. By pledging to reduce business tax rates, they promise an increase in the employment allowance for small businesses.
Labour: Aside from taxes that affect individuals directly, there are also taxes on businesses to consider. Labour plans to increase corporation tax to 26% over the next three years, following reductions over the past nine years. Whilst corporation tax is paid by all limited businesses, ownership of property investment businesses should pay particular attention in light of other proposals contained in the manifesto (see below).
Labour also pledge to review the option of a land value tax on commercial landlords on the value of the land they hold. Increases to VAT have been ruled out, but it is suggested that the current VAT exemption available for private school fees could be scrapped.
Conservatives: The Conservatives intend to introduce a higher rate of stamp duty land tax for non-UK tax resident companies and individuals purchasing property in the UK. The stamp duty will be levied at a rate of 3% on top of the 3% additional rate introduced in April 2016 which is payable for second home or investment properties. This replaces the current proposal of an additional 1% rate for overseas buyers, introduced under the previous administration led by Theresa May. There will be an exemption to Armed Forces and Crown services personnel serving overseas for work.
Labour: Labour has proposed property reforms, particularly for owners of second properties. The party also pledge to bring in a new national levy on second homes used as holiday homes. The levy will be equivalent to 200% of the current council tax bill for the property. Councils will also be given new powers to implement taxes on owners of properties that have been empty for over a year, in an attempt to bring empty homes back into use.
Another aim is to reform the Help to Buy scheme in order to focus it on first-time buyers on ordinary incomes.
They pledge an introduction of a 20% levy on overseas companies buying housing, whilst giving local people a first choice on new homes built in their area. Labour also proposes a right for leaseholders to buy their freehold at an affordable price. It is also intended that the ownership of land will be made more transparent, and this could be done by removing nominee companies.
Conservatives: The Conservatives intend to tackle tax evasion and avoidance by implementing a new anti-tax avoidance and evasion law. The law intends to (a) double the maximum prison term to 14 years for individuals convicted of tax fraud; (b) create an Anti-Tax Evasion unit in HMRC that covers all duties and taxes, ranging from individual errors to deliberate non-compliance; (c) consolidate existing anti-evasion and avoidance measures and powers and (d) introduce a new set of anti-evasion measures.
Conservatives: The Conservatives are pledging to broadly maintain the current tax system. The main exception to this will be the new surcharge in stamp duty which will affect non-UK residents. If you are resident outside of the UK and in the process of purchasing UK real estate, it is likely to be worth completing the purchase as soon as possible, to ensure you benefit from the present stamp duty rates.
Labour: Should Labour win the election, whether outright or through the support of smaller parties, it is clear that the above proposals would dramatically affect property owners, landlords and property investors. In that event it would be wise to review your circumstances.
If you would like to discuss any of the above with any of our specialist private wealth advisors, please get in touch.