What individuals can expect from the Labour Government

In the final article in our series on what taxpayers can expect from the Labour Government, we look at personal taxes.

As set out in our main business tax article, this series of articles is based on the contents of the Labour manifesto as the most reliable indicator of the direction of travel under the new Government. However, as the manifesto was light on detail on tax, we also explore previous statements from the Labour party that – although they did not make it into the final manifesto – may provide insight into what to expect on personal tax.

The key offer to individuals during the General Election campaign was the pledge not to increase National Insurance, VAT and the basic, higher or additional rates of income tax. The manifesto reiterates these pledges and states that Labour will ensure taxes on working people are kept as low as possible. Note that income tax is devolved in Wales and Scotland. Whilst the Welsh and Scottish Labour manifestos mirror this pledge on income tax, it will not have effect in Scotland as devolved income tax policy is currently under the control of the Scottish National Party in Holyrood. 

One of Labour’s flagship manifesto policies is its pledge to abolish the non-dom status, replacing it with a system for people in the country for a short period of time.

Given this is one of Labour’s flagship policies, forms part of its manifesto costings, and the previous Government’s proposals were due to come into effect in April 2025, we expect to see non-dom reform to feature heavily in Labour’s first Budget in Autumn 2024.

Although the manifesto provided no further details on Labour’s plans for non-dom reform, it has previously indicated it would go further than the changes announced in Spring Budget 2024 – our Non-Dom Regime Reform page provides further details. Our article What does an election mean for non-doms? is also a good summary of what Labour has previously said in respect of non-dom reform.

The manifesto reiterated Labour’s pledge to end the VAT exemption and business rates relief for private schools. Although this is not personal tax policy per se, the impact will be felt by individuals paying private school fees.

On 20 June 2024, the then-Shadow Chancellor Rachel Reeves told the Times CEO Summit that legislation would be contained in Labour’s first Budget in Autumn 2024. In practice this means the earliest the new law could take effect would be early 2025; however, there are press reports that Labour will delay implementation of the policy until September 2025.

Labour has indicated that it will consult on the VAT exemption but will introduce anti-forestalling measures to prevent taxpayers taking measures to side-step the changes.

The manifesto confirmed Labour’s plans to reform the taxation of carried interest.  No further details are given, however, in an interview with the Financial Times on 18 June 2024, Rachel Reeves signalled that a future Labour Government would continue the UK’s favourable tax treatment of private equity executives in instances where fund managers put their own capital at risk. She also said that if elected to Government, Labour would consult on these changes, suggesting there will be a lead time before any reform is enacted.

The Labour manifesto pledges to retain the triple lock for the state pension (i.e. where the State Pension is uprated in line with the highest of prices, earnings or 2.5 percent). Note that Labour refused to commit to match the Conservatives ‘Triple lock plus’ pledge to introduce an age-related personal allowance to increase in-line with state pension increases. 

The manifesto commits to undertaking a review of the ‘pensions landscape’ to consider what further steps are needed to improve pension outcomes and increase investment in UK markets. No further details were provided.

Reeves previously said she would reintroduce the Pensions Lifetime Allowance following its repeal by the last Government, with some form of carve out for key workers such as NHS doctors. In June 2024 some media outlets reported that Labour had changed its stance on this policy and there was no mention of the Lifetime Allowance in the final manifesto. 

Prior to the General Election there were rumours that inheritance tax (IHT) would be one of the main tax battlegrounds. In the end it barely featured in any manifesto.

As part of a wider Labour Party response to the Spring 2024 Budget, Labour indicated that it supports most aspects of the Conservatives’ proposals on the Reform of Domicile, including the move to a 10 year residence based test for IHT from April 2025, but that the party wanted to address what it considers to be ‘loopholes’ in these plans.

Following this, Labour’s manifesto stated that it would end the use offshore trusts to avoid IHT.

Finally, the manifesto pledges to increase the rate of stamp duty surcharge paid by non-UK residents by 1 percent. 

Labour has, on the whole, sought to reassure individuals, particularly working people, that it will impose no new tax rises on them. However, there are certain groups, notably non-doms and Private Equity executives, who face significant uncertainty over the impact of Labour’s policy on their tax affairs.

Other than stating that it would end the use offshore trusts to avoid IHT, despite press speculation there was no other mention of IHT reliefs or rates in the final manifesto. Similarly, other than reference to Private Equity, there was no mention of capital gains tax (CGT) in the final manifesto and the current Government has not indicated that it is considering increases or changes to either CGT or IHT. But as we have seen from past Governments, will the Labour Party copy ideas and proposals from someone else?

With Labour’s first Budget taking place in the Autumn (the exact date will be announced in the next few weeks) we anticipate at least a few months to wait until more is known for sure. 

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• Daniel Crowther