The three main parties in England and Wales have now released their manifestos in the run up to the General Election. Irrespective of who wins power following the vote on December 12, and whether it is by absolute majority or some form of cooperation within parliament, there are expected to be some significant changes to UK tax law. We summarise some of the key announcements that could impact entrepreneurs and businesses below.
The Labour Manifesto
The Labour manifesto includes the potential for some of the most significant changes to UK Tax law in decades, although it has been described by one commentator as an “encyclopaedia of ambitions” and there are so many changes that implementation of them all would probably take considerable time. Some of the core changes proposed that could impact entrepreneurs and businesses are:
- There will be an increase in Income Tax for some earners, with those earning over £80k paying tax at the additional rate of 45% on earnings above that level (currently applying to income over £150k) and those earning over £125k paying 50%.
- Capital Gains will be taxed at the same marginal rates as Income, with the implication being that Entrepreneurs’ Relief (ER) is abolished. This could see gains taxed at rates as high as 50%, compared to 10% now if ER applies, leading to a significant increase in tax for entrepreneurs selling their business.
- Owners of second homes will see an effective doubling of their council tax, and rent increases for residential property would be capped at inflation on an annual basis, in a bid to dampen down the UK property market and protect tenants.
- Corporation Tax will be increased to 21%, with a return to a higher rate for companies generating larger profits, as existed from 1973 until 2014, of up to 26% after two years.
- Private schools would lose their VAT exempt status.
- Large companies would be required to set aside 10% of the company to be held for the benefit of employees, allowing them to participate in capped dividends.
- Although their manifesto is silent on IHT, previous announcements have indicated they may look into replacing it with a potential lifetime gift tax.
The Conservative Manifesto
The Tories’ manifesto proposes the following changes:
- The limit at which NIC starts to be payable would increase to £9,500 in April 2020, and is proposed to rise to ultimately be in line with the personal allowance for Income Tax, currently £12,500. This would simplify payroll compliance and lead to a saving for some workers. It would also achieve an aim that was being worked towards in the 2000s, before significant increases were made in the Income Tax personal allowance.
- The employment allowance, which gives small businesses relief from National Insurance, would be increased from £3,000 to £4,000.
- Non-resident purchasers of UK homes would be subject to a surcharge of SDLT of 3% (on top of normal rates), in a bid to dampen down the UK property market.
- Plans to cut Corporation Tax rates have already been reversed.
- The rates of Income Tax, National Insurance and VAT would be frozen. This is a restrictive commitment in contrast to the spending commitments already made and the cost of the National Insurance reduction, although there would still be scope for Capital Gain and Corporation Tax rates to be increased.
- Entrepreneurs’ Relief, which has been recently described as not achieving its objectives, would be reviewed and reformed. If the usual consultative process for such a review is undertaken, there would be some time before any resulting changes would be implemented.
- A fundamental review of business rates would be undertaken, the current system having been in place since 1990. As a precursor, the retailer business rates discount would be extended to small cinemas, music venues and pubs and increased for one year. This would presumably only apply to England, since business rates are devolved to Wales, Scotland and Northern Ireland.
- Anti-avoidance and evasion measures would be consolidated and expanded.
The Liberal Democrat Manifesto
The Lib Dems’ manifesto largely comments on social changes, although they have proposed some tax changes as follows:
- There would be an increase in all Income Tax rates of 1%, as well as an increase of 1% on the rate of Corporation Tax (to 20%).
- The Capital Gains Tax annual exemption (currently £12,000) would be removed and be replaced by a single Personal Tax / gains allowance.
- Business rates in England would be replaced by a commercial landowner levy, based solely on land value rather than property value and levied on the landowner rather than the occupier.
- Recent changes to off-payroll working taxation (“IR35” rules) that shift the compliance burden to end users would be reviewed.
- Taxation of multinationals would build upon OECD proposals, to ensure that tax is more closely related to income generated in each country, and digital sales tax would also be enhanced for the same purpose.
- Employees in most listed companies would be entitled to request shares to be held in trust for the benefit of the employees.
- Frequent flyers would be taxed more than those flying once or twice a year, via a new frequent flyer levy.
Here to help
Change can lead to opportunity. However, when it comes to tax, change can also significantly impact taxpayers and the tax liabilities that they incur. Our dedicated tax planning team guide our clients through tax changes and help identify opportunities and strategies to organise their affairs in a tax efficient manner.
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