December 2019 General Election: Our tax review of the Labour manifesto

A striking feature of the 2019 General Election is the big difference in the tax proposals of the main three parties.

Our tax experts have reviewed their manifestos and summarised the parties’ thoughts on how their proposed policies could affect you and your business.

Labour: All change

The Labour manifesto proposes some radical changes to the taxation of both individuals and companies. While the increase in the rates of income tax for higher earners and corporation tax have attracted significant publicity, Labour are also proposing wholesale changes to the taxation of capital gains which could transform the taxation landscape for business owners looking to exit their business.

Individual Taxation

  • Increase income tax for those earning more than £80,000 to 45% and for those earning more than £125,000 to 50%.
  • Freeze the rates of national insurance and income tax for all others,
  • Scrap Married Persons Allowance,
  • Scrap the dividend allowance. Dividend and investment income to be taxed at the same rate as other income i.e. 20%, 40%, 45% or 50% depending on income levels. It is not expected that national insurance will be payable on dividends but watch this space

Capital Gains Tax

  • Scrap entrepreneur’s relief and consult on a different option
  • Scrap the separate capital gains tax annual exemption. Have a single personal allowance to set against income and gains. Any gain on the sale of a capital asset would then be taxed as the top portion of income and taxed at 20%, 40%, 45% or 50% depending on income levels.
  • There will be a de minimis of £1,000 for gains.
  • Introduce a ‘rate of return’ allowance against gains. This is likely to be some form of indexation to take account of inflation.

Business Tax

  • Implement a staged increase in the main rate of corporation tax from 19% to 26%.
  • For companies with profits below £300,000 there will be a small profits rate of 21%.
  • Review of all corporate tax reliefs within six months.
  • Abolish Patent box relief.
  • Abolish R&D Tax credits for large companies.
  • Review the option of a land value tax on commercial landlords as an alternative to business rates.

Inheritance Tax

Labour have stated the they will reverse George Osborne’s Inheritance Tax cut. It is not clear what this refers to but it could see the removal of the residential nil rate band and the transferable nil rate band between married couples. This would reinstate an individual’s IHT nil rate band at £325,000 with no access to other nil rate bands upon death.

Indirect Taxes

  • The imposition of VAT on private school fees
  • A promise not to raise the VAT burden for the ‘lowest paid 95%’. If we leave the EU, the UK Treasury would be free to reintroduce higher rates of indirect tax above 20% on luxury items, which were last seen before VAT was introduced in 1973.

Other Measures

  • An annual levy on second homes that are used as a holiday home equivalent to 200% of the current council tax band.
  • Require large companies with more than 250 employees to establish inclusive ownership funds to hold 10% of their share capital, with dividend payments distributed equally among all employees, capped at £500 a year.
  • Tackle tax evasion.
  • End to retrospective tax changes like the loan charge.

Click through to read our tax review of the Conservative and Liberal Democrat manifestos.