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With much commentary focused on the timing of Rishi Sunak’s announcement of the General Election - to be held on 4th July 2024, the purpose of this article is to take stock of what we know of the two main parties’ tax policies and to provide a brief U.K. economic update.
To date neither party has published their election manifesto. This article is based on; (i) the 2024 Spring Budget, (ii) press releases, and (iii) speeches and/or interviews given by members of each of the respective parties.
The summary below is subject to change as more detail becomes available.
‘Non-Dom’ Tax regime
At the 2024 Spring Budget, the Conservative Party announced the abolition of the non-UK domicile regime and proposed the introduction of a new residence-based regime (commonly referred to as the FIG regime) from 6 April 2025. We summarised the key points to note here: https://privatebank.jpmorgan.com/eur/en/insights/wealth-planning/spring-budget-2024-the-end-of-the-non-dom-regime
The Labour Party have announced that it is their intention to broadly adopt the current proposals save for closing certain ‘loopholes’ pertaining to the ongoing taxation of offshore trusts1. In particular, the Labour Party have announced that it is their intention to (i) abolish the proposed transitional reliefs and (ii) for assets in offshore trusts to cease to benefit from the ‘excluded property’ regime and therefore be subject to inheritance tax (IHT) with returns being subject to income tax and capital gains tax. It is anticipated that further detail should be provided during the course of the election campaign.
We will provide a further update on the expected timeline for these reforms in due course.
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Income Tax & National Insurance
To date Labour’s stance has been that they will not seek to raise either income tax or National Insurance. In writing for the Daily Mail in May 2024 Rachel Reeves, the shadow Chancellor of the Exchequer, commented that “I do not believe you can tax and spend your way to growth, and I didn't come into politics to raise taxes on working people.”2
The Conservative Party emphasized their ambition to abolish National Insurance with cuts announced at both the 2023 Autumn Statement and 2024 Spring Budget. Gareth Davies, Exchequer Secretary to the Treasury commented that this ambition would likely take “several decades”3to achieve. As such, whilst further reductions to the National Insurance rates may be announced the tax is unlikely to be abolished in its entirety.
It is not expected that the Conservative Party will announce reforms to income tax instead favouring a reduction to National Insurance.
Capital Gains Tax
It is not anticipated that either party will propose any changes to the headline rate of capital gains tax. In March 2023, Rachel Reeves stated on the Today programme that "I don’t have any plans to increase capital gains tax".4That being said, the party’s deputy leader Angela Rayner has criticised the way in which capital gains tax applies.5
At present, subject to the application of certain anti-avoidance provisions, carried interest distributions received by private equity executives are subject to taxation as capital gains at a rate of up to 28%. It is currently understood that reforming the taxation of carried interest is not a policy objective for the Conservative Party.
Conversely, the current Labour Party have on multiple occasions stated their desire to change "the way in which carried interest for private equity firms are taxed"6. No details of their proposed reforms have been shared however the Labour Party estimate that an additional £500m of tax revenue would be realised7.
Inheritance Tax
In the run-up to the 2024 Spring Budget it had been rumoured that the Conservative Party would introduce cuts to IHT. Jeremy Hunt has even gone so far to as describe IHT as “pernicious” and “profoundly anti-Conservative”8 . It does however remain to be seen whether the Conservative Party will include any changes to IHT in their manifesto.
The Labour Party leader Sir Kier Starmer has stated that he is “fundamentally opposed”9to any such cut. Prior to the 2024 Spring Budget the Labour Party advised that they would seek to reverse any cut to IHT introduced by a Conservative Party.
VAT
A key Labour Party policy is the introduction of VAT for private school fees10.Speaking at the Labour Conference in October 2023 the Shadow Chancellor of the Exchequer Rachel Reeves commented that “In my first budget as Chancellor I will end the tax loophole which exempts private schools from VAT and business rates”. The Labour Party have estimated that this policy could raise an additional £1.7 billion per year11.It is understood that the Conservative Party are opposed to the proposal.
Stamp Duty / Stamp Duty Land Tax (SDLT)
In 2023 the Labour Party announced their intention to increase the existing 3% surcharge for overseas buyers acquiring UK property. The proposed increase has not been confirmed and has received little attention. This would impact “foreign individuals, trusts and companies when they buy UK residential property”12.
In the 2024 Spring Budget, the government extended SDLT reliefs for Registered Social Landlords and first-time property buyers and abolished Multiple Dwellings Relief13 . It is not clear as to whether the Conservative Party will propose any further amendments to SDLT as part of their election manifesto.
Wealth Tax and Mansion Tax
It has been mooted that the Labour Party could introduce either a Wealth Tax or Mansion Tax. Rachel Reeves has been unequivocal in her response and has confirmed that “she will not target expensive houses”14and that the Labour Party “have no plans for a wealth tax”.15It is also understood that the introduction of these taxes is not a Conservative Party policy however this has not been formally confirmed.
Economic update
Barring a major surprise, we do not expect the outcome of the election to alter the path for U.K. economy or for U.K. related assets.
The muted market reaction to the announcement shows us that the direction of travel in the coming months will be driven more by economic developments than they will be by political risks.
On the whole, we agree with Rishi Sunak’s assessment that the economic picture has been improving. After the mix of growth and inflation was challenged by the ripple effects of the pandemic and energy price shock, there are signs that things are coming into better balance. That has caused the Bank of England to signal the potential for interest rates to be lowered at one of their upcoming meetings.
However, this week’s inflation figures show that won’t be an easy feat for the central bank, and we don’t expect to see the first interest rate cut until the end of the summer – after the General Election takes place. Higher interest rates make it more expensive for the government to borrow and spend money. And after the Conservative party left little room to work with after their national insurance cut back in March, we would expect the winner of the election to enter a period of fiscal consolidation (i.e. less spending or higher taxes).
The good news is that should help the Bank of England in their efforts to keep prices contained. Whether it is a Labour or a Conservative victory, less expansive spending plans should support the outlook for interest rate cuts over the coming years. In our view, that makes today’s yield levels attractive in U.K. fixed income – particularly for U.K. taxpayers. Meanwhile, a tighter policy stance might limit the strength of the pound over the near-term, but we expect the outlook to turn more positive for sterling as the global economy rebounds towards the end of this year.
For stocks in the U.K., the message is likely to be more nuanced. While certain Labour policies might be net-negative for sectors like Energy, Transportation and Utilities, there are other pockets of the market like Banks, Home Builders and Healthcare that should benefit. On the whole though, we think that there are certain parts of the U.K. market that offer attractive diversification benefits for portfolios given their high dividend yields and low correlation to other global markets.
1 https://labour.org.uk/updates/press-releases/reeves-i-will-take-on-the-tax-dodgers-to-fund-our-nhs/
2https://www.dailymail.co.uk/debate/article-13457721/Shadow-Chancellor-Rachel-Reeves-Britain-Labour-money.html
3 https://news.sky.com/story/abolishing-national-insurance-could-take-several-parliaments-minister-admits-13089734
4https://www.bbc.com/news/uk-politics-65122284?secureweb=Teams
5https://www.bbc.com/news/uk-politics-65122284?secureweb=Teams
6https://assets.publishing.service.gov.uk/media/65e9d03a5b65240011f21bc6/240223_Opposition_costing_-_Carried_Interest_FINAL.pdf
7https://www.theguardian.com/politics/2021/sep/19/labour-plans-to-raise-500m-by-closing-fund-managers-tax-loophole
8https://www.telegraph.co.uk/business/2024/05/24/uk-general-election-jeremy-hunt-inheritance-tax-unfair/
9https://labourlist.org/2024/03/budget-2024-labour-must-hold-firm-in-opposing-rumoured-inheritance-tax-cut/
10https://labour.org.uk/updates/press-releases/rachel-reeves-speech-at-labour-conference/
11https://www.bbc.com/news/uk-england-essex-67487136
12https://labour.org.uk/document/npf-final-policy-document-2023/
13https://www.gov.uk/government/publications/spring-budget-2024/spring-budget-2024-html
14https://www.bbc.com/news/uk-politics-66634187
15 https://www.theguardian.com/politics/2023/aug/27/rachel-reeves-rules-out-wealth-tax-if-labour-wins-next-election
