The General Election – what does it mean for your personal tax position?

With the announcement of the election due to take place on 4 July, as usual one of the key battle grounds will be the proposed tax changes that each party will deliver. Simon Hurren, Private Client Tax Partner looks at what each parties’ proposal means for your personal tax position.

In the recent Budget the current Government have continued their theme of looking to provide tax cuts to benefit working people. This has been achieved with a cut in the National Insurance rate, firstly a 2% cut in the main rate for employees from January 2024 and then a further 2% was announced in the Budget that came in from April 2024. This has resulted in a saving of up £1,508 per year.

At the time of the latest cut, Chancellor, Jeremy Hunt stated his desire to further cut the rate of National Insurance Contributions (NIC) and the Conservative manifesto has pledged a further 2% cut. This will take the main rate of National Insurance to 6% which does represent a significant change, halving of the main rate from the starting point of 12%.

This would bring the overall potential tax saving to £2,262 per year when taking into account the previous cuts already in place.

It is worth bearing in mind that those who will benefit most from the cuts are taxpayers earning in excess of the basic rate tax band. For those with lower salaries, they may only have a small benefit, if one at all. Likewise, pensions will not get any benefit from the cut to National Insurance.

Freezing of tax bands

Whilst the headline cut to National Insurance contributions due give a tax cut to many working people, the cut is made with a backdrop of freezing tax bands and the allowances. This includes the personal allowance and the £100,000 income threshold at which individuals start to have their personal allowance restricted.

Likewise, for anyone who has taken advantage of the dividend allowance and Capital Gains Tax (CGT) annual exemption in the past, have seen a drastic cut over the past couple of years resulting in further tax being payable on investment income and gains.

Clearly, it is easy to get caught up with headline tax cuts but even despite this, the freezing of the bands is increasing the tax burden for all.

Interestingly, the Labour party have not vowed to increase any of the tax allowances or bands, despite heavily criticising the increasing tax burden that it causes. Reform UK have however, pledged to increase the tax free personal allowance to £20,000 and increase the higher rate tax band to £70,000 in a step to reduce the fiscal drag caused to date.

Pension lifetime allowance

The current Conservative Government scrapped the pension lifetime allowance, which capped the amount that could be saved in a pension pot without facing additional tax charges. The argument for doing so was that it did not want to discourage people from working, particularly those in the NHS, who were being hit by an adverse tax position as a result of the increase to their pension.

At the time when this policy was introduced, Labour were heavily critical and indicated that they would seek to reintroduce it. However, even before the release of their manifesto it has been clear that this policy would not be reintroduced.

Pension savers can therefore continue to build up their pension tax efficiently as long as they stay within the annual allowances available.

Non – doms

This has long been a key point of attack for the Labour party towards the Conservatives, focusing on the tax benefits for non-domiciled individuals.

The rules around domicile are complex but the default is that you acquire the domicile of your father unless you sever all ties with the country and elect for a domicile of choice elsewhere.

Historically, being non-domiciled enabled individuals to elect to only pay tax on UK source income and any income remitted to the UK. Once an individual has been resident in the UK for 15 out of the last 20 tax years, this flexibility was lost with them becoming deemed domiciled in the UK and subject to tax rules in the same was a UK domiciled individual would be.

This was particularly beneficial for individuals who held significant wealth outside the UK as it restricted their UK liability to the income they brought and used in the UK.

In the Budget earlier this year, the Conservative Party introduced significant changes to the non-dom system, perhaps with a view to removing one of Conservatives key focus points.

Labour intends to scrap the non-dom status and replace it with a modern scheme for people who are genuinely in the UK for a short period.

Likewise, they are keen to remove any Inheritance Tax (IHT) advantage beneficiaries of an offshore Trust may receive.

Regardless of the election result, there are significant changes ahead for non-doms and it is important you take advice to understand how these will impact you.

VAT on school fees

The Labour manifesto confirms that VAT will be charged on school fees, which adds a further 20% costs to parents, with the cost of school fees coming out of taxed income the real impact could be even more significant. It will be interesting to see what impact this has for private schools and the impact on state schools should there be an influx of additional students.

If any of the proposed changes set out above will impact you, we would be very happy to discuss the implications and explore and potential tax planning that can be considered before the changes are introduced. Get in touch by calling 0330 058 6559 or email hello@scruttonbland.co.uk