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What could the election mean? Conservative Manifesto Tax Polices

Manifesto Tax Policies – Conservative

The most prominent tax announcements included: increasing the inheritance tax threshold to £1m; ensuring all people who work 30hrs per week on the minimum wage pay no income tax; a commitment to no rise in VAT, national insurance contributions or income tax; increasing the personal allowance to £12,500 and raising the threshold for the 40p rate of income tax so that nobody earning under £50,000 pays the rate.

David Cameron focused his speech and the manifesto around the twin themes of having a ‘clear economic plan’ and establishing the Conservatives as the party for ‘working people’. His tax policies appear to be an attempt to reinforce those messages, particularly his pledge to alleviate those on the minimum wage from the burden of income tax. The Conservatives intend to eliminate the deficit (£90bn) in current spending by 2017-18 and move into an overall budget surplus from 2018-19.

These are the party’s pledges by area of tax:

Income tax / national insurance

The Conservatives will take everyone earning less than £12,500 out of income tax altogether (which also acts as a tax cut for 30 million people) and pass a law to ensure a tax-free minimum wage for those working at least 30 hours per week. The party would raise the higher rate (40p) Income Tax threshold to £50,000. The party has committed itself to no increases in National Insurance or Income Tax.

The party will continue to help smaller businesses take on new workers through the Employment Allowance, which frees businesses from the first £2,000 of employers’ NICs so that a third of employers pay no jobs tax.

Pensions and tax

The Conservatives will reduce the tax relief on pension contributions for additional rate taxpayers. The size of the annual allowance would be gradually reduced from £40,000 to £10,000 for those making £150,000 a year or more.

The Conservatives also draw attention to changes made by the coalition government abolishing the 55 per cent tax on pension pots, so that when the deceased is 75 or over any beneficiary only has to pay their marginal Income Tax rate – normally 20 per cent – when they draw down the pension. And enabling anyone who dies before the age of 75 to pass on their pension pot completely tax-free, so that beneficiaries will pay no tax on pensions they inherit or on the income they draw down.

Property taxes

From this autumn, the party will introduce a new Help to Buy ISA to support people who are saving up for a deposit for their first home. A ten per cent deposit on the average first home costs £15,000, so if a prospective homebuyer puts in up to £12,000, government will put in up to £3,000 more. A 25 per cent top-up is equivalent to saving a deposit from your pre-tax income – making it effectively a tax cut for first-time buyers.

While the party does not mention it in their manifesto they have made clear their strong opposition to a mansion tax.

Inheritance tax

Inheritance tax is one of the party’s flagship announcements. The Conservatives will increase the effective Inheritance Tax threshold for married couples and civil partners to £1 million, with a new transferable main residence allowance of £175,000 per person.

Capital gains tax / investment income

There are no pledges specific to this area, though proposals to raise the non-dom charge (see below) are relevant. The manifesto also draws attention to the coalition Government’s move to enable ISAs to be passed on to a spouse tax-free, so that from this April they are no longer subject to Income Tax or Capital Gains Tax.

Families, tax credits & low earners

The party is committed to lowering the amount of benefits that any household can receive to £23,000 and continue to roll out Universal Credit.

The Conservatives will bring in tax-free childcare to support parents back into work, doubled to 30hrs per week. In addition, the party will keep the transferable tax allowance which enables married couples to transfer £1,060 of their tax-free income to the husband or wife, where the highest earner is a basic rate taxpayer; this applies to civil partnerships too, and the transferable amount will always rise at least in line with the Personal Allowance.

The Conservatives would insist that EU migrants who want to claim tax credits and child benefit must live in the UK and contribute to this country for a minimum of four years.

Business taxes

Building on corporation tax cuts in the 2010-15 Parliament, the Conservatives “want to maintain the most competitive business tax regime in the G20, and oppose Labour’s plans to increase Corporation Tax.”

The Conservatives would conduct a major review into business rates by the end of 2015 to ensure that from 2017 they properly reflect the structure of Britain’s modern economy and provide clearer billing, better information sharing and a more efficient appeal system.

A Conservative government would allow farmers to ‘smooth their profits’ for tax purposes over five years, up from the current two years, to counter income volatility. The manifesto notes the tax incentives for films, theatre, video games, animation and orchestras introduced by the current government and pledges to continue these reliefs, with a tax credit for children’s television next year and the expansion of these incentives for the creative industries sector when possible.

International

The manifesto states that a Conservative government would lead international efforts to ensure global companies pay their fair share in tax, as David Cameron did at the G8 Summit in Northern Ireland in 2013, which secured significant international progress on fairer tax rules and full transparency over who really owns companies.

The Conservatives will push for all countries to sign up to the Extractive Industries Transparency Initiative; review the implementation of the new international country-by-country tax reporting rules and consider the case for making this information publicly available on a multilateral basis.

Finally, they will ensure developing countries have full access to global automatic tax information exchange systems and continue to build the capacity of tax authorities in developing countries.

VAT and duties

The party pledges no increases in VAT.

The manifesto notes the abolition of Labour’s fuel duty escalator, but makes no commitments on fuel duty for the next Parliament.

Avoidance and evasion

The Conservatives state that they will raise at least £5 billion from continuing to tackle tax evasion, and aggressive tax avoidance and tax planning, building on the £7 billion of annual savings delivered in the last Parliament.

The Conservatives will increase the annual tax charges paid by those with non-domiciled status, ensuring that they make a fair contribution to reducing the deficit, and continue to tackle abuses of this status.

The manifesto states that ‘hardworking taxpayers’ supported the banks during the financial crisis and so the banks should in turn support them during the recovery; the party will therefore keep the bank levy in place and restrict established banks’ ability to pay less tax by offsetting their profits against past losses.

The Conservatives are also seeking to legislate a criminal offence for those companies which fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.

Devolution

The party will continue devolution settlements for Scotland and Wales, and implement the Stormont House Agreement in Northern Ireland. They will also progress plans to give English MPs a veto over English-only matters, including on Income Tax.

A Conservative government would implement the recommendations of the Smith Commission so that more than 50 per cent of the Scottish Parliament’s budget will be funded from revenues raised in Scotland and it will have significant new welfare powers to complement existing devolved powers in health and social care. The party will agree new rules with the Scottish Government for how the block grant will be adjusted, to take account of the new devolved tax and welfare powers, and ensure that where responsibility for taxation has been devolved, tax changes only affect public spending in that part of the country.

There would be a ‘funding floor’ to protect Welsh relative funding and provide certainty for the Welsh Government to plan for the future, once it has called a referendum on Income Tax powers in the next Parliament. There is also make a promise to make the Welsh Government responsible for raising more of the money it spends so the Welsh people can hold their politicians to account.

For Northern Ireland the Conservatives would complete the devolution of Corporation Tax powers to the Assembly, consistent with the Executive fulfilling its commitments on finance, welfare reform and efficiencies in the Stormont House Agreement.

HMRC and the tax system

The Conservatives would establish the Office of Tax Simplification (OTS) on a permanent basis and expand its role and capacity.

 

For more information please contact us.

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