Immediate impact of the UK general election on taxes
Dissolution of Parliament is set for 30 May, meaning there has been a rapid ‘wash up’ procedure during which draft legislation was either rushed through or scrapped.
Finance (No. 2) Act 2024 passed into law on 24 May in a very short timeframe.
The state opening of a new Parliament is scheduled for 17 July but summer recess is currently diarised for 23 July, meaning newly elected MPs would be in post for just over a week before the Parliamentary equivalent of summer holidays begins.
Some timetable changes may be needed.
There were a number of announcements made at Spring Budget 2024 with an intended start date of April 2025 but in respect of which no law yet exists. Examples include:
- ‘Non dom’ tax reforms
- abolition of the furnished holiday let regime
- extending inheritance tax relief to land in habitat schemes
- the ‘UK ISA’.
Post election tax policy changes and potential emergency budget
There is typically an emergency budget in the aftermath of a general election and subject to the timetabling issues noted above, it is reasonable to anticipate hearing the plans of the incoming Chancellor before the end of 2024. A re-elected Conservative majority might resist bringing forward a 3rd Finance Bill of 2024 and instead schedule any new policies into the normal Spring 2025 timetable. A government of any other persuasion, including a coalition led by the Conservatives, is far more likely to accelerate putting their new tax policies onto the statute book as quickly as possible.
None of the main parties have yet published their manifestos, but some election promises are starting to come out in media appearances.
Labour's proposed tax reforms and commitments
One of Labour’s earliest commitments was to not increase either income tax or national insurance, which was presumably to cut off speculation about whether a series of recent NI cuts might be reversed.
Labour have also spoken at recent conferences and elsewhere about:
- introducing VAT and higher business rates on private schools
- closing what they call loop-holes in the Conservative non dom reform plans
- increasing taxes on private equity managers by tightening rules around carried interest, and
- capping corporation tax at 25% for the whole of the next Parliament.
Conservative's tax policies from the Spring Budget 2024
The Conservative direction of travel is mainly gleaned from their recent Spring budget, including:
- reforming the non dom regime to make it less generous
- abolishing the furnished holiday let regime
- reducing national insurance, with what they phrase as a long-term ambition to abolish it altogether
- lifting more people out of the ‘high income child benefit charge’, and
- retaining higher pension annual allowances and the abolition of the pensions lifetime allowance.
What if there is no clear majority?
Should neither of the two most dominant parties secure an absolute majority, there may be policy influence from a coalition partner, whose headline tax policies are:
- Liberal Democrats – policies tend towards taxing big businesses and wealthier persons whilst taking the tax burden off the less well off, including a windfall tax on oil company super profits and reversal of bank tax cuts.
- Greens – policies include better tax breaks for culture and the arts whilst removing tax breaks for fossil fuels.
- Nationalist Parties – The tax policies of the SNP, Plaid Cymru and the DUP are not currently obvious, which is perhaps not surprising at this stage. It is of note that Scottish tax bands and thresholds now differ significantly from the rest of the UK equivalents and devolution may remain at the heart of the policies of the nationalist parties.
- Reform UK – policies focus on tax cuts across income tax, corporation tax, VAT, SDLT and IHT as well as tax reliefs for private schools and private medical cover, with a 4% delivery tax for inbound sales being one of the few tax increases anticipated.
It seems likely that any of these smaller parties might do no more than temper or exaggerate the direction of travel of a coalition partner, albeit nothing can be ruled out.
Strategic pre-election tax planning tips for individuals and businesses
There is always a bustle of tax speculation around general elections, some of which proves accurate and some less so. The kind of thought processes we think are to be advised include:
- If you habitually use your tax allowances then do so ahead of any post election budget. For individuals these include pension contributions, ISA allowances, capital gains annual exemption, inheritance tax annual allowance and gifts of surplus income allowance.
- For business owners, the equivalent is to look at any large or abnormal spending such as plant and machinery purchases which may currently benefit from full expensing or AIA. Fundraising under EIS/SEIS is another example of where monetary limits may change.
- Consider any in-progress transactions. If you have a part completed transaction then completing it ahead of any post-election budget should lock in current tax regimes.
- Consider accelerating or deferring transactions. For example, if you fear capital gains rates may increase, then there is a window of opportunity to crystallise gains under the current regime. Whereas, if you think SDLT rates or house prices or interest rates may come down, then there is scope to delay a property purchase until 2025. Personal opinion on what changes may follow the election will be a driving force in these decisions.
No doubt new tax pledges will trickle out and full manifestos will be published over the next few weeks, and opinions on what the future holds will change correspondingly.
The next step
Should you have any questions about your tax circumstances and the effect of the upcoming election, please contact Graham Boar on g.boar@uhy-uk.com, or your usual UHY adviser.
