Post-Election analysis: what businesses want to know on tax

In the wake of the recent general election, businesses and individuals alike are keenly anticipating the implications of Labour's proposed policies on the UK’s economic landscape.

With a budget on 30 October 2024, speculation is rife on what Chancellor Rachel Reeves may announce on taxation and spending. (see our quick guide to Labours tax plans)

She has been clear that she wants to pursue an ambitious pro-growth agenda, so she will wish to bring forward a package of tax policies which support that in the budget.

This may include seeking improvements to the administration of tax to provide greater certainty for businesses wanting to invest in the UK.

To shed light on these potential changes, Bishop Fleming recently hosted a webinar to discuss Labour’s likely tax and fiscal strategies.

Capital Gains Tax (CGT)

Labour has indicated that existing CGT rates are generally safe from retrospective changes. However, deferred considerations or future cash receipts could be affected by any future changes in CGT rates.

Labour may align CGT rates with income tax rates and reintroduce reliefs like indexation allowance and tapering relief. Keir Starmer has promised to exclude CGT on the sale of main homes.

There could also be changes to CGT reliefs, most notably reliefs when selling a business that may be eligible for business asset disposal relief. The relief was made less attractive by the previous government, but Labour may go further.

See our previous article: Might we see changes to Capital Gains Tax after the election?

Stamp Duty Land Tax (SDLT)

Labour plans to revert the temporarily increased SDLT threshold for first time buyers from £425,000 to £300,000 from 1 April 2025. The focus instead will be on encouraging building and relaxing planning rules.

VAT on Private School Fees

Labour's longstanding policy to impose VAT on private school fees is likely to be detailed in their first budget in the autumn, with enactment in early 2025. Anti-forestalling measures may also be announced to stop parents paying fees in advance to avoid VAT.

The policy may be held up in the courts if, as rumoured, some independent schools choose to challenge it under human rights legislation.

One possible upside of this policy for the larger independent schools who may have invested in large capital projects is that they could claw back hundreds of thousands of pounds from building projects once they become liable to VAT.

Any independent school contemplating capital expenditure may wish to defer the project until the new rules are in place to ensure VAT recovery.

We await sight of the legislation in order to be clearer on what is and what is not possible.

VAT and Hospitality

There are no current plans to reduce VAT rates for the hospitality sector, despite ongoing industry campaigning.

Pensions

Labour's initial stance involved reversing recent pension rule relaxations and possibly retaining the abolished lifetime allowance charge. It has now decided not to retain the lifetime allowance charge.

There remains uncertainty however around the annual allowance for pension contributions going forward and whether higher rate tax relief may be restricted to a flat rate.

Labour plans to review the pension system generally and to allow for the consolidation of small pension pots.

Teachers' Pay and Conditions

Labour proposes using VAT on private school fees to fund pay rises and recruit teachers.

They aim to establish fair pay agreements, starting with adult social care, and reinstate the school support staff negotiating body. However, if pay agreements are higher than inflation, the Treasury may have to find more funds than expected.

Corporation Tax and Capital Allowances

Labour aims to maintain the corporation tax rate at 25%, ensuring economic stability. They promise a roadmap for business taxes with full consultation on changes.

Continuation of the annual investment allowance and full expensing for capital investments is expected, with clarification on qualifying items anticipated.

Inheritance Tax and Business Property Relief (BPR)

While there are no specific Labour manifesto commitments on inheritance tax, a review and potential changes to business property relief and agricultural relief are possible.

Watch also for changes to lifetime gifts and pension inheritance tax rules.

Non-Domiciled (Non-Dom) Tax Status

Labour plans to modify the existing non-dom regime by removing transitional rules and inheritance tax protection for offshore trusts.

They might introduce tax incentives for new UK residents and non-doms bringing funds into the UK, with complex technical details to follow.

See our previous article on the taxation of non-doms.

National Minimum Wage and Employment Rights

Labour plans to enforce national minimum wage compliance through a single enforcement body and consultations to adjust the wage according to the cost of living.

Proposed employment rights changes include unfair dismissal protection from day one and eliminating zero-hour contracts. The government has already published statutory guidance on fire and rehire of employees.

IR35 and Worker Status

Labour's historical introduction of IR35 suggests no significant changes are expected. They propose consultations to create a single status of worker, simplifying rights and tax treatments for workers.

Fiscal Drag and Allowances

Labour intends to maintain the freeze on income tax thresholds until 2028, indirectly increasing tax revenue. This approach allows them to avoid raising main tax rates while still increasing overall tax revenue.

Creative Industries and Tax Reliefs

Labour's industrial strategy includes support for creative industries, with no expected major changes to existing R&D tax reliefs, though specific details are yet to be announced.

What next?

We await the autumn budget on 30 October 2024, but it is already clear that the above themes highlight Labour's approach to maintaining economic stability, with detailed consultations and support for various sectors, while keeping current tax rates and allowances largely unchanged.

Contact us

We will keep you updated as tax policy announcements arise ahead of the autumn budget.

In the meantime, if you would like to discuss how the change of government may affect your taxes or those of your business, please contact your usual Bishop Fleming advisor.