What the new Labour government means for tax

Tax bands and allowances

Labour promised no increases to income tax rates but they also made no proposals to increase tax bands either – resulting in ‘fiscal drag’. Many people will move into a higher tax bracket simply due to rising wages. The Government intends to keep tax bands frozen at their current thresholds until 2028 so, in the meantime, the UK overall tax take will increase.

National Insurance Contributions

Labour stated they will not increase NIC for individuals.

Capital Gains Tax

Labour plans to ‘close the loophole’ through which private equity carried interest is currently taxed at 28% because it is treated as a capital gain. The rate that might apply in future is yet to be confirmed. Though it has been reported that where a fund manager puts their own capital at risk, capital treatment may be allowed (as in other countries): it is possible that there will be a consultation exercise this year over when carried interest will be taxed as income.

The Labour manifesto makes no mention of other CGT measures and Labour have ruled out introducing CGT on the disposal of a primary residence. However, it has been reported that they are drawing up a list of options to raise tax revenue in the future if needed and that raising the rate of CGT is one of those options. Again, it has been reported that Labour will consult ahead of any changes.

Non-dom status

While the Conservative government already proposed abolishing the UK’s tax regime for non-UK domiciled individuals, the Labour manifesto simply confirms that it plans to abolish the ‘non-dom loophole’ although there are no specific proposals for a replacement regime for short term UK residents. 

Labour stated in April 2024 that they support many aspects of the original proposals, but they would make some changes should they form the next government. The most significant of these would be to make sure that all foreign assets within trusts would be liable to UK Inheritance Tax. In addition, they would not choose to introduce a tax discount on remittances in the first year of the new rules. Keep up to date with the non-dom changes here.

Inheritance Tax

Aside from the proposals on offshore trusts, there was no other reference to IHT in the Labour manifesto, however, it has been reported that Labour are drawing up tax raising options that include significant changes to IHT. The reports suggest this could relate to scrapping or changing the rules for Business Relief and Agricultural Relief to raise tax revenue without changing the headline rates of IHT. 

It is possible that similar changes are also being considered on lifetime gifts, where currently no IHT is due where a person lives for more than seven years after making a gift. 

IHT is often described as the UK’s “most hated tax” so it is highly unlikely that changes would be implemented without consultation – it is rumoured that Labour intends to present any reform options to the Office for Budget Responsibility for analysis before announcing any proposals and consultation period. 

Pensions

Labour had previously stated that they would re-introduce the lifetime allowance charge. During the election campaign that plan was dropped, however, that could make other changes to pensions tax reliefs more likely in future.

Currently, individuals receive tax relief (up to 45%) on making pension contributions and can pass on their pension on free of IHT on death (read more here). It has been rumoured that this IHT relief is being considered as part of a wider review of capital taxes (see above). 

In addition, previously Rachel Reeves has campaigned to reduce tax relief for pension contributions for high earners, saying that introducing a flat rate of relief at 33% would “be a welcome boost for basic-rate taxpayers and a cut in the savings subsidy for higher earners”. 

Under the current rules, individuals can contribute up to £60,000 a year to their pension and can also use up any unused element of this annual allowance for the prior three tax years. For higher earners, it may be worth considering topping up pension contributions ahead of any possible changes – read more in our planning guide.  

Stamp Duty Land Tax

Labour intend to increase the SDLT surcharge applied when overseas nationals buying UK residential property by 1% (taking this surcharge to 3%).