This time next week, UK voters will finally head to the polls for the 2024 general election, deciding which of the two main parties – Labour or the Conservatives – will take over the keys to Number 10 for the next five years.
And whilst seven days is a long time in politics and anything could still happen, pollsters in the know are all predicting a comfortable win from Keir Starmer’s Labour Party, with the latest YouGov projections giving the Red Team its all-time best result of 425 seats.
So, with the first change in Britain’s governing party for 14 years looking ever more likely, it’s worth taking an impartial look at the pension and tax policies that could be coming into force very soon – and how these could impact your investments.
What are Labour’s plans for the economy?
Pensions
Shadow Chancellor Rachel Reeves has pledged to maintain the Conservatives’ current ‘triple lock’ system on state pensions, which guarantees an annual rise in pensioners’ state pension income in line with the average earnings index, the rate of inflation, or 2.5% – whichever of the three turn out to be highest.
The Labour Party has advocated for introducing Collective Defined Contribution (CDC) pensions, which would see both employer and employee put towards a shared fund with the intention of providing a more predictable retirement income compared to individual-based schemes.
In addition, though not explicitly outlined in the manifesto, they’ve signalled an interest in bringing back the Lifetime Allowance – capping the amount savers could put in their pension without being hit with taxes – at some point in the future, which was previously abolished by the Conservatives.
This could lead to a significant tax increase on those whose pensions now exceed the new limit – although many commentators have said it could well prove a logistical nightmare to sort out in practice, so it’s far from certain that this one will materialise.
On top of these plans, Labour has announced it’ll carry out a full-scale review into pensions and retirement savings in an effort to ensure savers are getting the most out of their arrangements – which could result in stronger regulation of private pensions and/or a push for higher employer contributions to workplace schemes further down the line.
Labour representatives have also made suggestions that they’d look to tackle pension inequalities more broadly, having previously voiced support for reforming Mineworkers’ Pensions and addressing long-standing issues affecting women due to historical pension age changes.
Taxation
Labour’s most recent manifesto promises no increase in National Insurance (NI), VAT or income tax for the foreseeable future – having pledged not to ‘increase taxes on working people’ and maintain current tax thresholds until at least 2028. The party are also expected to cap the main rate of corporation tax at 25% for the duration of its parliamentary term.
It’s worth noting no such promise is made regarding Capital Gains Tax: the manifesto makes no direct mention of this policy area outside of signalling it would look to reclassify carried interest as a form of taxable income, rather than capital gains. So, it’s possible Labour could revisit this at some point, having repeatedly stopped short of directly ruling out future changes.
On a more immediate note, Keir Starmer’s party does intend to remove the current VAT exemption on private school fees – which, functionally speaking, will add a new form of taxation into the mix. Labour expects this move to bring up to £1.5bn in additional revenue, which will be funnelled back into the state school system.
What’s more, Rachel Reeves seems to have aimed a large portion of her tax pledges at property owners not currently residing in the UK.
Her treasury would up the stamp duty surcharge on non-UK residents by a full 1% and commit to completely abolishing the ‘non-domicile’ (‘non-dom’ for short) tax regime, replacing it with a new system for short-term residents.
And not only that: all assets held within trusts would be hit with inheritance tax in situations where the owner has been a UK resident for ten years or more.
Industry figures have also noted the possibility that inheritance tax could be expanded to apply to inherited pensions (as part of what’s being called a ‘pensions death duty’) in situations where the person in line to take on the sum has already used up their inheritance allowance – which, if rolled out, could lead to beneficiaries owing tens of thousands of pounds in tax after inheriting a typical £100,000 pension.
Though not on the cards at the moment, a future Labour Government may also want to alter the way certain taxes such as pension tax, dividends tax and/or other investment-related taxes are distributed.
And if so, it’s likely that any changes would affect higher earners, and those with larger portfolios, more aggressively to make the system more ‘progressive’ and redistributive.
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