We are pleased to summarise an array of manifesto pledges, focusing on Rishi Sunak’s Conservatives and Sir Keir Starmer’s Labour, concentrating on tax, pensions and economics.
Labour
Tax:
- Shadow Chancellor, Rachel Reeves, stated that corporation tax would not rise from its current rate of 25%.
- A closure of the non-domicile ‘non-dom’ tax workaround which currently benefits those who, for tax purposes, permanently reside outside of the UK.
- The application of both business rates and VAT to private schools.
- No proposed increases to income tax, National Insurance (NI) or VAT but has not confirmed their stance on Capital Gains Tax (CGT) or pension contribution tax relief.
- An intention to “end the use of offshore trusts to avoid inheritance tax”, by bringing the value of assets held within these vehicles inside the scope of UK IHT.
Pensions:
- State Pension: Committed to retaining the current regime in respect of the triple lock – an annual uplift of inflation, average earnings or 2.5% – whichever is highest.
- A full pension review with an aim to improving security in retirement and financial outcomes for pensioners.
- After initially suggesting a reinstatement of the lifetime allowance, or a variant of it, Labour has omitted any reference to the legislation in their manifesto, likely confirming reports that they will not reintroduce the tax charge due to the complexities involved.
- In their ‘Financing Growth’ Document, issued January 2024, suggestions of a scheme to allocate a proportion of defined contribution pension capital into British small-cap growth companies were made.
Conservatives
Tax:
- Class 4 National Insurance (NI) for the self-employed will be abolished with an ultimate goal of abolishing the NI framework altogether.
- A reduction in the main rate of NI from 8% to 6%, resulting in an overall halving of the tax since the beginning of 2024.
- No proposed increases to either income tax, Capital Gains Tax (CGT) or VAT, however, the frozen personal allowance threshold will naturally draw more people into paying more tax.
- No proposed changes to Inheritance Tax (IHT) legislation.
- Child benefit no longer to be assessed on an individual’s income, but instead on a household’s income with the taper (high income child benefit charge) starting at £120,000 and finishing at £160,000.
Pensions:
- A new take on the State Pension’s triple lock – the ‘triple lock plus’. This addition to the existing framework would see pensioners’ tax-free income allowance increase in accordance with the triple lock in an attempt to prevent a full state pension, in isolation, exceeding the frozen personal allowance and being subject to income tax.
- No changes to the current tax-free cash entitlements
- Pension contributions to continue benefiting from income tax relief at an investor’s marginal rate.
- A promise not to introduce any new pension taxes.
Honourable Mentions from the Competition
- The Green Party has proposed a wealth tax of 1% on those with assets over £10 million and 2% on those with assets exceeding £1 billion. Alongside this, there would be parity between capital gains tax and income tax and a restriction on pension contributions to that of basic rate.
- Reform UK would increase the personal allowance to £20,000, increase the higher rate tax threshold to £70,000 and halve the rate of IHT from 40% to 20%. In conjunction to this, Reform UK would increase the IHT threshold to £2 million and eradicate stamp duty on property purchases below £750,000.
- The Liberal Democrats have proposed that CGT would be charged at 20% for gains below £50,000, 40% up to £100,000 and 45% over £100,000, mirroring income tax rates. This would be a standalone tax, opposed to adding any gains to taxable income as is done currently. A mild increase in the CGT annual exemption from £3,000 to £5,000 and a new ‘inflation allowance’ have also been discussed.
Summary
Despite Reform UK closing the gap on The Conservatives to just three points in opinion polls, Labour has a significant twenty point lead. Accordingly, the markets are expecting a Labour government with a large majority.
As has been in France, stock markets do not like uncertainty, particularly surrounding politics, resulting in volatility. In the UK, we have the opposite. Although the election was called early, there was always going to be an election by January 2025 and the markets welcomed a fixed date. Labour has emphasised its pursuit of stability with no Budget until the autumn. Perhaps ironically, the UK could potentially be regarded as a safe haven by investors concerned by greater uncertainty in the EU.
It is important to remember that the UK markets make only a relatively small proportion of global markets. In addition, The FTSE 100 derives approx. 85% of its income from overseas trade. A UK election, regardless of the outcome, would be unlikely to have a significant impact on global markets.
Overall, the UK General Election outcome is unlikely to surprise the UK markets, with economic factors playing a larger role in determining market performance.
Please note that our view on the general election is based on our understanding of the proposed policies and available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in this article, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.