Following the announcement of a general election on 4 July, the Conservative party published its manifesto on Tuesday 11 June. As trailed in the press beforehand, the manifesto puts tax cuts front and centre, likely as a way for the Conservatives to distinguish themselves from Labour, and as a means to gain support while Labour party continues to lead in the polls. Although the manifesto claims that the tax cuts are all fully funded, it does not seem too difficult to poke holes in this costing and many have been left wondering whether elements of the manifesto are ever actually expected to come into force.
Income tax and National Insurance ('NI')
The Conservatives have pledged not to raise income tax. The party has also pledged to abolish mandatory "Class 4" NI contributions payable by the self-employed. Currently self-employed individuals pay 6% NI contributions on income between £12,570 and £50,270 and 2% on income above £50,270. The party will seek to abolish the 6% rate payable on income up to £50,270. The timing of this pledge is to be confirmed, with the manifesto confirming that Class 4 NI contributions will be abolished by the end of the next Parliament. This is an unsurprising pledge given that the Conservatives abolished "Class 2" NI contributions for the self-employed in April of this year, and have been explicit in their commitment to support self-employed people, described in the manifesto as "the risk takers and entrepreneurs who help drive our economy." Although Labour has confirmed that it will not seek to raise taxes (including NI) for working people it is not expected that Labour will make a similar pledge.
Those who are employed will continue to pay "Class 1" NI contributions under the Conservatives' proposals but the manifesto promises to cut the main rate of NI by 2%. Currently, Class 1 NI contributions are payable at 8% on income between £12,570 and £50,270 and 2% on income above £50,270. The Conservatives' pledge is to reduce the 8% rate to 6% by April 2027. Again, this proposal reflects the direction of travel given that reductions to "Class 1" NI contributions were also made by the Chancellor in the Spring Budget.
Capital gains tax ('CGT')
The Conservatives have been clear that they will not increase the rate of CGT on chargeable gains realised on the disposal of residential property which is not covered by Principal Private Residence Relief ('PPR') – currently 24% (down from 28% as of 6 April 2024 following the last Budget). PPR will be maintained, meaning that for most people, disposing of their main home should not result in a CGT liability. For landlords, the manifesto offers an additional incentive which is a two-year temporary period of relief from CGT if they sell their property to a tenant.
The manifesto further pledges to keep Business Assets Disposal Relief ('BADR') on the sale of a business, which should appeal to entrepreneurs and business owners whose businesses have grown in value. Where BADR applies, CGT is charged at the rate of 10% on qualifying business assets, with a lifetime allowance amount of £1 million.
The manifesto is silent on the treatment of carried interest and whether this could be subject to income tax, rather than CGT in future and which has been one of the Labour party's key tax policies in the run up to the election. The treatment of carried interest will be of particular interest to the private equity community.
Inheritance tax ('IHT')
IHT continues to be a divisive issue within the Conservative party, with some Conservative MPs arguing for it to be abolished completely. This manifesto did not address IHT for individuals at all, which may come as a disappointment for those hoping for IHT to be cut or for changes to be made, for instance, to the nil-rate band amount.
The manifesto does, however, pledge to retain key IHT reliefs including Agricultural Property Relief and Business Property Relief, both of which are valuable to individuals and trustees holding qualifying assets. It is unclear as to whether these reliefs will continue in their current form, or whether the scope of either of the reliefs should be limited if there is a need to raise revenue.
The non-dom regime
In the Spring Budget, the Chancellor announced the abolition of the non-dom regime [link] as well as a proposed change to the IHT rules so as to move from a position based on domicile to one based on residence. It came as something of a surprise that this was a proposal by the current Government given that the abolition of the regime had long been a focus of the Labour party. The Conservative manifesto did not add any detail to the technical paper produced by the Treasury in March [link], meaning there is still no clarity as to exactly how the new regime will operate for individuals resident but not domiciled in the UK. It is unlikely that any greater clarity will be received until after the election, despite the uncertainty that this is causing for many people.
Stamp Duty Land Tax ('SDLT')
The manifesto includes a pledge to increase the threshold at which first-time buyers pay SDLT to £425,000 from £300,000. This comes alongside a proposal for a Help to Buy scheme to enable first time buyers to borrow funds towards the cost of a new build home.
Other taxes
The manifesto also confirms that corporation tax will not rise, which means it will remain at its current level of 25%. The Conservatives also revealed a new pensions tax guarantee pledge which provides that no new taxes will be introduced on pensions. The party will maintain the 25% tax-free lump sum and tax relief on pension contributions. Further, the manifesto set out plans for the "Triple Lock Plus" which guarantees that both the State Pension and the tax-free personal allowance for pensioners always rises by the higher of inflation, earnings or 2.5%.
Although the manifesto prioritises tax cuts, the proposed cuts to NI and SDLT are unlikely to have the same impact on voters as a more radical approach, such as a cut to IHT, which would be very much favoured by many of the Conservatives' natural supporters, and so some restraint has been exercised in not including this in the manifesto. In an election in which there are only two possible winners (and the polls would currently say only one possible winner), the Conservative and Labour parties, it remains to be seen how the pledges here will compare to those made by the Labour party and until then, uncertainty will prevail.
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