The Labour election manifesto was published on 13 June 2024 and it outlines transformative spending plans across various sectors, particularly targeting economic stability, public services and social equity.
In terms of taxation, there are five broad changes which Labour proposes to make in order to fund their spending pledges: (1) closing the non-dom 'loopholes' and reducing tax avoidance, (2) ending tax breaks for private schools, (3) closing the carried interest tax 'loopholes', (4) increasing the stamp duty land tax surcharge applicable when non-residents purchase UK residential property and (5) subjecting oil and gas giants to a windfall tax. We set out below the key points to note.
Income tax, national insurance contribution and capital gains tax
The manifesto makes reference to individuals already being subject to the highest tax burden in 70 years and, therefore, the Labour pledge not to increase national insurance contributions, VAT or the basic, higher or additional rates of income tax.
The manifesto is silent in relation to capital gains tax and we consider that there is scope for the rate of capital gains tax to be increased, but this not mentioned in the manifesto.
Similarly, there is no suggestion of the introduction of a wealth tax.
Inheritance tax
The only comment made in the manifesto in relation to inheritance tax relates to the inheritance tax treatment of trusts created by non-domiciled individuals, as explained below.
Taxation of Non-Domiciliaries
Many non-domiciled or deemed UK domiciled individuals living in the UK had hoped that the Labour manifesto would provide greater insight into the party's proposals as to the taxation of them and their structures going forwards.
The manifesto states "We will abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period." There is no further information as to what the replacement regime will look like and how it might differ from the four year 'foreign income and gains' regime proposed by the Conservatives in the 2024 Budget.
The Conservatives had announced in the 2024 Budget that for individuals who have been in the UK for four years, and who will pass from being remittance basis users in the 2024/25 tax year to being taxed on an arising basis in 2025/26, will only pay tax on 50% of their foreign income (but not foreign gains) for the 2025/26 tax year. The Labour manifesto confirms that it would not introduce such transitional relief.
The manifesto adds " We will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here". This echoes comments made by Labour following the 2024 Budget, in which the Conservatives had confirmed that trusts created by non-domiciled individuals before 6 April 2025 would retain their favourable tax treatment for inheritance tax even following the abolition of the non-dom status.
The manifesto does not have any detail as to how Labour would implement this change and no reference is made to the change proposed in the 2024 Budget to charge inheritance tax by refence to residence, rather than domicile.
There are also no details given in the manifesto as to how trusts which were created historically by non-UK domiciled individuals will be taxed, but there is a risk that they will be subject to inheritance tax charges every ten years, charges when assets leave the trust structure, potentially as well as charges on the death of the settlor if they or their spouse are able to benefit from the trust. These changes could have far-reaching consequences for UK residents who have set up trust structures when they were non-UK domiciled, even if created decades ago and even if they are unable to benefit from them.
Similarly, no guidance is given as to how existing trust will be taxed in terms of income tax or capital gains tax.
Property taxes
Property taxation will see modifications through a 1% increase to the stamp duty land tax surcharge paid by non-resident individuals on purchasing UK property. The current rate of the surcharge is 2%, which under Labour would increase to 3%.
Businesses
To provide businesses and investors with certainty, Labour proposes to cap corporation tax at 25% for the entire parliament and states that it will act if tax changes in other countries pose a risk to the competitiveness of the UK corporation tax rate. Further, Labour proposes to publish a roadmap for business taxation for the next parliament to allow businesses to plan investments with confidence. Further, Labour intends to create a National Wealth Fund of £7.3bn to unblock billions of pounds of private investment into British businesses.
The manifesto also includes a proposal to subject the excess profits of oil and gas companies to a proper time-limited windfall tax, to support families with the cost of living.
VAT and private schools
Labour will not increase the overall VAT rate but it plans to end exemptions for private school fees, which will now be subject to VAT at 20% . The business rates relief which is currently available for private schools will also end. No timetable is provided for this.
Private equity
Labour proposes to abolish 'tax loopholes' for private equity managers and tax the performance-related pay known as carried interest is taxed as income rather than capital gain. While no specific details are given, we would expect that going forwards carried interest will be subject either to income tax or to capital gains tax at an increased rate such that the rate aligns with the income tax rate.
Tax avoidance
Labour's approach indicates a clear intention to enhance HMRC's capabilities to tackle tax avoidance. This includes increased registration and reporting requirements and substantial investments new technology to build capacity and close the tax gap.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.