Labour tax updates
Labour's manifesto is called "It's Time For Real Change" and, if implemented, their tax proposals would certainly radically alter the current tax landscape. In an election campaign where Brexit and public spending issues have dominated the headlines, the tax policies that had previously been trailed by the two main parties had largely been amendments within the boundaries of the current tax regime e.g. Labour's proposal to increase income tax for those earning more than £80,000 and the Conservative's pledge to reduce national insurance contributions. However, the proposals unveiled in the Labour manifesto and the related documents "Funding Real Change" and "Labour's Fair Tax Programme" include a variety of major changes to the structure and scope of current UK taxation.
This article briefly discusses the following aspects of this:
- changes to corporate taxation;
- use of tax to disincentivise "bad" behaviour;
- introduction of a new form of financial transaction tax;
- removal of "legal loopholes";
- public filings of tax returns; and
- removal of the preferential tax treatment of profits from wealth.
The Labour tax proposals go far beyond tinkering around the edges of the current tax system and, arguably, given their scope, even playing within its rules. Although Labour considers that its policies are fully costed, the scale of the changes make their impact on government revenues, taxpayer behaviour and the attractiveness of the UK as a place to do business hard to assess. Whether we are given an opportunity to find out how accurate those costings prove to be is now a question for the electorate.
25 November 2019
The Labour Manifesto states that Labour would:
- gradually reverse cuts to corporation tax to reach 21% (Small Profits Rate) and 26% (main rate).
- treat international corporate groups under common ownership as unitary enterprises, so that 'profits are declared where economic activity occurs and where value is created.'
- undertake a widescale review of corporate tax reliefs.
- ensure an additional rate of income tax (45%) is payable from £80,000 and a new "super-rich rate" (50%) is payable from £125,000 (with National Insurance and income tax rates frozen for everyone else).
- abolish the lower rate for dividend income and equalise dividend income with other rates of income, as well as removing the dividend allowance above a de minimis threshold of £1,000.
- The Manifesto also alludes to Labour removing ‘non-dom’ status.
Capital Gains Tax
- Tax capital gains at income tax rates.
- Remove the separate annual exempt allowance for capital gains, above a de minimis threshold of £1,000.
- Scrap Entrepreneurs Relief in its current form.
- Ensure primary residences to continue to be exempt from capital gains tax.
- charge VAT on private school fees.
- abolish the Married Persons Allowance; and
- reverse George Osbourne's Inheritance Tax cut (which could mean returning to the simple nil rate band of £325,000 per person).
Labour has also promised to launch the “biggest ever crackdown on tax avoidance and evasion and to reform the inefficient system of tax reliefs" and has pledged to "transform the power and resources of HMRC."
22 November 2019
The Institute for Public Policy Research (IPPR), a think tank which informs many Labour policies have suggested that capital gains tax rates and income tax rates should be taxed at the same rates: ''We propose that income from wealth should be taxed the same as income from work. Capital gains should be taxed at the same rates as income from employment, and the separate reliefs applied to capital gains tax (CGT) should be abolished.'' For further detail, see the IPPR's recent paper: Just tax: reforming the taxation of income from wealth and work.
Watch this space for updates on Labour's proposals – we expect that it is more likely that, if elected, Labour will reverse the reductions in CGT rates brought in by the Conservatives (raising basic and higher rates from 10%/20% to 18%/28%) rather than align capital and income rates.
19 November 2019