Labour Party Tax Manifesto: “Here’s to not buggering it up”

Introduction

The Labour Party ran its tax manifesto up the flag pole today.

Although I have lost track of time after travelling halfway across the world, I was pretty sure that it should have been yesterday.

Perhaps wisely, they let the Green Party have a free run at setting out the maddest policies. Anything afterwards would seem pretty sensible in comparison.

So, what did the brains trust – whether onshore or offshore – of Starmer and Rayner come up with?

Non-doms and IHT

Firstly, as we’re talking about trusts, we are told that they will end the use of offshore trusts to ‘avoid’ IHT.

It is unclear exactly how they will do this. However, one assumes that any person that has been resident in the UK for a period of time, will find all of their personal assets, and any trust assets in which they have a beneficial interest, will be within the IHT net.

Where they don’t meet this test, it will only be UK assets subject to UK tax.

Essentially, this follows the Conservative plan – however, there will be no grandfathering for trusts that exist before 6 April 2025 (or whenever the legislation became effective).

We are told that “removing non-dom discount loophole in 2025-26” will raise £600m. I assume that they are referring to this added measure. But I don’t know. As its made up, silly new terminology.

Of course, there is no volte-face when it comes to the Tories surprise announcement they were scrapping the favourable non-dom regime. To be fair, the Tories had pretty much nabbed the idea off of Labour in the first place.

Teeth will be gnashed, particular around the plan to remove benefits from existing trusts. It has the potential for major behavioural consequences. For example, with many years of family capital at stake (not just a years income or gains), many non doms might recalculate whether they can do what they need to do in the UK and remain non-UK resident instead. The rewards of successfully doing this might be irresistible.

Frantic attempts to obtain feedback and perform a limited consultation following the Spring Budget were completely rug-pulled by the calling of the election.

I wonder whether there is still some hope for constructive discussions that might soften the below but allow Labour to keep its manifesto promises.

I think I have found my last, dying ember of tax hope there…

Income tax and NIC

We are told that Labour will not increase income tax – and they refer specifically to ALL the relevant rates.

Further, there will be no increase in National Insurance. Of course, the Tories have announced there plan to continue cutting NICs.

However, the dog that didn’t bark is back in the chow bowl. There’s  no comment on whether the personal allowance and other thresholds will remain frozen in carbonite.

Fiscal drag, man.

VAT

They have confirmed that they will not increase VAT.

However, they have notably said that they will impose VAT on private school fees. In addition, these schools will be liable for business rates.

This contrasts with the Tories who will keep the status quo and with the Reform party who will give tax relief for the payment of school fees to incentivise parents to do this.

CGT

There is no similar promise from Labour not to raise the rate of CGT. However, they have not set out, like the Greens, that they are eyeing up the equalisation of CGT and Income Tax.

They have said that the current practice of treating carried interest in the private equity industry as capital gains tax will end. It will be interesting to see what effect this might have on the UK’s standing as a location for this kind of activity (which is highly transient).

However, there is no suggestion of any wealth taxes, something which Rachel Reeves has previously ruled out (yep, the Greens were having one of them, too).

Property tax

They have also indicated that they, like a number of other parties, will have a bit of a fiddle with Stamp Duty Land Tax (SDLT).

However, Labour will take a different approach to the other tweakers.

They will add another 1% on the rate for non-residents buying UK residential property. At the moment, the surcharge for foreigners buying such property is 2%. When considering how the other charges might apply, this brings the already staggering, potential rate of SDLT of 17% to 18%.

I often say that a popular tax is one paid by someone else. This has the additional benefit in that it is paid by those who probably can’t vote either.

Corporate tax

I welcome their commitment to “stop the chaos” of chopping and changing tax rates and rules and “turn the page with a strategic approach that gives certainty and allows long-term planning”.

I don’t think people appreciate how damaging not only the complexity of the UK’s tax rules are but also the fluidity and that you might be building on shifting sands. However, I will believe this new approach when I see it.

They say they will “cap” the corporation tax at 25%. This is expressed slightly differently to the confirmation of no increases for income tax and NIC.

It is good that they will retain a permanent full expensing system for capital investment and the annual investment allowance for small business.

We are told that the dial will be turned up (not something many could afford to do with their heating over the winter) when it comes to the windfall tax on energy companies.  They will extend the sunset clause on the Energy Profits Levy until the end of the next parliament.

Perhaps unsurprisingly, Labour supports implementation of the OECD global minimum rate of corporate taxation and backs international efforts to make sure multinational tech companies pay their fair share of tax. But this is like saying that you agree with the tide coming in and going out each day. We’re back to Sunak on the beach again?

Tax avoidance and other monkey business

Again, like most of the other parties, we pay a visit to the magic money tree that is cracking down on tax avoidance.

We are told that they will “modernise HMRC” and “change the law to tackle tax avoidance”.

Meaningless word salad.

Conclusion

This is the tax manifesto you would expect.

Labour has been setting out its stall for several weeks and there are no real surprises here. I have not seen the SDLT proposal.

Labour have been in, to quote Churchill,  “not buggering it up” mode for months and months now. This manifesto won’t do anything to spoil that mode.

Unlike the other party proposals, it is highly likely we will see these ones in motion.

Over to you, Brains Trust.