An Overview of Policy Changes Under the New Labour Government - Ad Valorem
3 minutes
With the recent change in Government, many clients are understandably curious about what to expect from the new Labour administration, particularly after 14 years of Conservative leadership. In this article, Regan Saffill, provides his opinion of what the change in government could mean for the tax landscape, including summary of the anticipated changes, alongside some thoughts on their potential implications. It’s important to note that Labour has yet to implement these proposals, so they may evolve or differ in practice.
Key Policy Changes
- Fiscal Policy
Labour has committed to having only one major fiscal event per year, meaning significant changes to tax rates, allowances, and policies will be confined to a single annual update.
- Taxation
Labour has promised not to increase Income Tax, National Insurance, or VAT. However, they plan to eliminate non-domiciled tax “loopholes.” This could lead to the complete abolition of the non-domiciled status, moving beyond the Conservative approach of tightening eligibility criteria.
Additionally, Labour intends to remove offshore trusts for Inheritance Tax purposes. Currently, property settled in an offshore trust by a non-domiciled individual is excluded from the individual’s estate for Inheritance Tax. The proposed changes would subject all UK residents to inheritance tax on their worldwide assets.
- Corporation Tax
Labour has outlined several key points regarding corporation tax:
– Corporation Tax rates will be capped at 25% for the next five years.
– Full-expensing for Capital Allowances will be made permanent.
– The Annual Investment Allowance (AIA) will remain, presumably at the current level of £1 million.
– Labour aims to provide greater clarity on what qualifies for Capital Allowances, though it remains uncertain how they will achieve this given the current reliance on case law.
- Business Rates and Stamp Duty
Labour plans to reform the business rates system to level the playing field between high streets and online marketplaces. This could result in significant changes in liability and calculation of business rates.
They also propose increasing the non-resident Stamp Duty Land Tax (SDLT) rates by 1%. Non-residents currently pay a 2% surcharge on residential property over what UK residents pay; this would increase to 3%.
- Employment Rights
Labour has announced various changes to employment rights:
– Zero-hour contracts will be banned.
– Parental leave, sick pay, and protection from unfair dismissal will be available from day one.
– The minimum wage will be increased, and age brackets for the minimum wage will be removed.
- HMRC and Compliance
Labour plans to increase funding for HMRC to tackle tax avoidance, likely resulting in more enquiries. HMRC will focus on large businesses and high-net-worth individuals (HNWIs), with increased powers and expanded registration and reporting requirements. Labour also aims to modernize HMRC’s technology to boost capacity.
- Education
Labour intends to impose VAT and business rates on private schools. This may prompt clients paying private school fees to consider paying these fees upfront before the changes take effect. Clients should be aware that HMRC may implement anti-forestalling rules to prevent clients from paying upfront to avoid this VAT charge.
- Research and Development
Labour does not currently plan to make further changes to the R&D scheme, providing some much-needed stability for the sector.
Conclusion
While these proposals outline Labour’s intended direction, it is essential to remember that they may be adjusted or not implemented as initially planned. Clients should stay informed and prepared for potential changes as the new government settles into its role and begins to execute its policies.
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