With just a day to go before the general election, we thought now would be an appropriate time to take a look at the main parties’ plans for taxes and pensions as they describe them in their manifestos. And, as you might expect, their proposals will give you plenty to think about when it comes to the impact on your personal finances.
The Conservatives have committed to making no increases in income tax or national insurance. They’ve also pledged to increase the tax-free personal allowance to £12,500 and the higher rate tax threshold to £50,000 during the life of the next Parliament.
Labour have said that they wouldn’t increase the basic rate or higher rate of income tax, nor make any changes to national insurance. However, they do say that they would reintroduce a top rate of tax of 50p in the pound for those with incomes of more than £150,000, together with a lower starting rate of tax of 10p. The Liberal Democrats say that they would also raise the personal allowance to £12,500, and increase the level of higher rate and additional rate tax charged on dividend income by 5% – in order to target company directors who prefer to pay themselves a dividend rather than a salary.
UKIP’s stance is that they would increase the personal allowance to £13,000 by 2020, and they’ve also proposed a new 30p income tax band for those earning between £45,300 and £55,000, with a 40% tax rate thereafter. The Greens, meanwhile, say that that they would increase the additional rate of tax from 45% to 60% for those with incomes of more than £150,000.
The Conservatives’ policy pledge is to take the family home (for many) out of inheritance tax. Currently, everyone has a tax-free allowance for inheritance tax of £325,000 (called the ‘nil rate band’), or £650,000 for spouses and civil partners. Inheritance tax is then charged at 40% on the value of estates above these amounts. The Conservatives want to create an extra tax-free band of £175,000 per person, or £350,000 for spouses or civil partners, which would apply to the main residence.
Labour don’t mention inheritance tax in their manifesto, but have indicated that they would outline changes in their first budget should they be elected. Likewise, the Liberal Democrats’ manifesto doesn’t cover inheritance tax. UKIP say that they would abolish it by 2020 (although they don’t say how they would fund this), and the Greens have pledged to fundamentally reform inheritance tax so that the tax charge would be on the recipient rather than the donor.
The Conservatives have proposed reducing pension tax relief for people earning more than £150,000 to fund the additional inheritance tax relief for main homes, as described above. The annual allowance for tax relief on pension contributions (currently £40,000) would come down to £10,000, a reduction of 50p in the annual allowance for every pound of earnings between £150,000 and £210,000.
Labour have also targeted tax relief on pensions for additional rate tax payers, saying that they would reduce tax relief from 45% to 20%, and that they would cut the annual allowance to £30,000. The Liberal Democrats say that they would review pension tax relief with a preference for a flat rate of 33%, while the Greens’ proposal is to abolish it altogether.
Finally, the main parties have adopted these positions on other taxes:
- Both the Conservatives and Labour have said that they wouldn’t increase VAT.
- Labour have committed to abolishing non-domicile status, which exempts non-domiciled UK residents from paying tax on foreign income and capital gains. The Conservatives have indicated that they would review the rules, while the Liberal Democrats would increase the current level of charges.
- Labour have pledged to introduce a ‘mansion tax’ on homes worth over £2 million.
- The Liberal Democrats have said they would reform capital gains tax, which would include refocusing entrepreneurs’ relief.
And after the election?
Whatever the outcome of the general election, it’s likely that the newly elected government would hold a ‘mini’ or ‘emergency’ budget, probably in late June or early July. You’ll therefore need to think about how the proposed tax changes might affect you and be prepared to take action accordingly – possibly ahead of such a budget.