With a general election in the UK looming, it’s not unlikely that there may be tax changes ahead. So as 2024 begins what can we expect when it comes to UK tax? Peter Webb, our Head of Tax Advisory, takes a look.
Rishi Sunak recently confirmed that his “working assumption” is that the next general election will be held in the second half of the year. However, the Prime Minister’s comments certainly don’t rule out the possibility of an earlier election; May could prove a likely date especially with local elections also taking place then.
With IPSOS indicating that Labour currently holds a 17 point lead over the Conservative party, it’s widely accepted that a change of government is coming. It remains to be seen whether the Conservative party will bite the bullet and commit to an early election or hold on to see if things will improve for them. So, what should we expect from a tax perspective from each party?
What tax changes would a Labour government introduce?
Various announcements about tax have been made by Labour with the most significant including:
- Removal of the ‘loophole’ that allows private education to escape VAT and business rates resulting in significant increases in private school fees.
- Closure of a ‘loophole’ by abolishing (or restricting) tax advantages for non-UK domiciles living in the UK. This group can currently choose whether or not to tax their non-UK income and gains and also enjoy a much more favourable Inheritance Tax regime.
- Increase to the current 2% surcharge for overseas property buyers purchasing properties in England and Northern Ireland.
- Reintroduction of the Lifetime Allowance for pension savings, reversing the Conservative’s recent abolition of this charge.
What if the Conservatives stay in power?
- Tax freezes – in March 2021, it was announced that personal allowances and basic, higher rate and additional rate tax bands would be frozen for four years until April 2026. The freeze was then extended to 2028. The effect of this is, in real terms, to increase the amount of tax being paid.
- Changes to Inheritance Tax – speculation about Inheritance Tax reforms (or even abolition) continues. Despite rumours, there haven’t been any significant reforms to Inheritance Tax over the last few years. As a complex tax with many reliefs that are tricky to navigate and little used, simplification of the IHT system feels long overdue.
Although the date of the general election hasn’t been announced there’s one firm date in the diary to watch out for – the Spring Budget on 6 March 2024. This is likely to be the opening salvo from the Conservative party in their general election campaign.
What can we expect from the Spring Budget?
In a surprise move, National Insurance was reduced in the Budget statement last Autumn. Unless government finances have improved significantly, it doesn’t seem likely that there’s scope for any more significant tax cuts, but some good news could come from Jeremy Hunt in the form of reducing the amount of time that tax allowances and tax bands remain frozen.
Whilst we don’t expect rates of Income Tax to be reduced, it’s likely that there will be some form of headline-grabbing surprise to try and create a feel-good factor ahead of the election. One of the biggest concerns for taxpayers is the increase in the cost of living. A form of help could come from a reduction in taxes on gas, electricity and fuel; perhaps replacing that lost revenue with windfall taxes on energy companies.
With a general election looming, it’s highly likely that some big tax changes will be announced as the year progresses. As always, we’ll share our analysis and further comments once any announcements are made.