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What the Coming Election Can Mean for Taxation?

Published by Prerana
Posted Date: May 29, 2024 , Modified Date: May 29, 2024

The UK is set to hold its general election on 4 July 2024, and as the election approaches, both the Labour and Conservative parties are making various promises to gain public attention and curry favour with the voters. In this spirit, let us take a look at the promises they’re making regarding taxes and what the post-election taxation environment looks like.

Will Income Taxes Be Reduced?

The Labour Party claims that the Income Tax will not be raised and has not taken spending cuts off the table.

Meanwhile, the Conservatives are clear on their intention to cut taxes. The Chancellor, Jeremy Hunt, suggested lowering taxes paid by people earning between £100,000 and £125,000 per year, as they pay more income tax than higher earners to a British newspaper. Additionally, he has also gone on record calling Inheritance Tax as anti-Conservative and a tax that prevents people from saving.

On the same topic, the Shadow Chancellor, Rachel Reeves, argues that while she supports lowering taxes, she will not put forth unfunded proposals. Unfunded tax cuts refer to reductions in government income without corresponding cuts in government spending or increases in any other forms of revenue.

What Changes Can be Expected on National Insurance?

The Conservatives have already cut down National Insurance three times to date and plan to scrap it in the future completely. However, Ms Reeves says she will not “play fast and loose” with public finances.

general election uk 2024

The Labour Party believes that the Conservative government’s decision to abolish National Insurance Contributions (NICs) will cost £46 billion. However, the Conservatives have claimed the abolition will not happen before 2030 and only if economic growth is sufficiently strong.

Furthermore, the Conservatives claim the Labour’s spending commitments would lead to a tax hike of £2,094 for every hardworking family. The opposing party has dismissed the claims.

Prospects for Pension Tax

One of the major agenda for general election of the Conservative Party is cutting down on taxes for pensioners. Prime Minister Rishi Sunak has already announced an increase in tax-free allowances for pensioners by at least 2.5%.

This would allow around 80 million pensioners to pay approximately £100 less in taxes 2025 and £275 less in annual taxes from 2030.

The opposition has disregarded this announcement and says that it is another desperate move by the government to gain economic credibility for the general election.

Possible Changes to Other Taxes

Both parties have promised changes to several other taxes. Here is a breakdown of their claims:

  • Stamp Duty Land Tax (SDLT): The Labour Party has announced the increase of 3% existing surcharge for overseas buyers acquiring UK property. This will directly affect the foreign business individuals who have invested in businesses and properties in the UK.
  • Inheritance Tax (IHT): As discussed before, the Chancellor finds IHT “pernicious” and “profoundly anti-Conservative”. When asked if cutting down the inheritance tax is a possibility, he replied that it is a topic the Conservative Party will look at in the future.
  • VAT: The Shadow Chancellor claimed that she would end the tax loophole that exempts private schools from VAT and business rates in her first budget as a Chancellor. The party has claimed that it will raise £5 billion a year by addressing tax avoidance and evasion and £2.6 billion by tackling the loopholes.
  • Wealth Tax and Mansion Tax: The Labour Party was rumoured to introduce a Wealth Tax or an Inheritance Tax. However, Ms Reeves denied the rumours confirming she will not target expensive houses and has no plans for a wealth tax.
  • Non-Dom Tax Regime: Along with MDR abolition, the Conservative Party announced the abolition of the non-UK domicile regime in the Spring 2024 budget. The Party introduced a new residence regime called the FIG regime effective from 6 April 2025.

Conclusion

The Conservative and Labour Parties have been a part of a media battle with the general election just around the corner. It is speculated that the Conservatives are up for their worst election defeat yet since their 178-seat loss in 1997. In addition, 78 MPs of the Conservative Party have announced their step down from the election.

Whoever wins on 4 July, the UK will see some major changes in the taxation sector. Tax experts and professionals have claimed the win will not affect the economic condition of the country even though it is in dire need of economic improvement. That being said, the inflation and economy are improving and on a path to a positive track.

Prerana
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