What the new Labour government means for tax

Income Tax, National Insurance, and VAT rates frozen:

Labour has committed to a tax lock, pledging not to raise the rates of income tax, National Insurance, or VAT. These rates have been frozen for some time, and with the recent rates of inflation, results in more earners falling into higher tax rate thresholds.

Capital Gains:

Labour plans to reform capital gains tax by aligning it more closely with income tax rates. This would mean higher rates for individuals realising significant capital gains, particularly those in higher income brackets. The political/economic objective appears to be an intention to reduce the disparity between how income from work and income from investments are taxed, ensuring that wealthier individuals contribute more equitably to public finances​.

Corporation Tax:

The party has pledged corporation tax rate will remain capped at 25% and the £1m Annual Investment Allowances will be maintained. This measure aims to provide businesses with long-term certainty for investment decisions and is part of Labour’s strategy to promote economic stability and growth​. We will be interested to see if any business investment reliefs, such as capital allowances or R&D tax credits are liberalised to assist with this growth.

‘Non-Dom’ Tax Status:

Labour plans to close non-dom tax loopholes, which they believe will generate significant revenue.  The previous Conservative Budget committed to a tightening of the rules however, Labour proposals would go further than what has been set out in draft legislation. The party has however, indicated that they would support a temporary repatriation facility to encourage Non-Dom’s to repatriate accumulated foreign income and gains, as previously proposed by the Conservatives.

Employer Taxes:

National Insurance Contributions (NICs): While Labour has pledged not to increase National Insurance rates for employees, there may be adjustments for employers. This could involve increasing the employer NICs rate for higher-earning employees or introducing a new band to ensure businesses contribute fairly based on their wage bills​. They may also introduce tax incentives for employers who pay the Living Wage, ensuring that employees receive fair compensation and remove age bands for National Minimum Wage purposes so there is only one rate.

Apprenticeship Levy Reform: Labour plans to reform the apprenticeship levy to ensure that it better supports skills development and training. This could involve more flexibility in how funds are used and potentially increasing the levy for larger businesses to fund broader vocational training initiatives​. Here in Northern Ireland, employer’s are paying the Apprenticeship Levy, which is set at 0.5% of an employer’s annual pay bill over £3 million, however, the funds raised do not directly benefit the Northern Ireland economy. Many businesses, need local control over how the funds are used to support apprenticeships and skills training programs​ here in Northern Ireland.

Inheritance Taxes:

The Conservative government had intended to change the inheritance tax system to base it on residence rather than domicile. Labours manifesto proposal focussed on capturing foreign assets held in trust for UK inheritance tax purposes. However, recent headlines suggest that Labour will go further with proposed changes to the inheritance tax system and there may be changes to Business and Agricultural Reliefs and lifetime gifts.

If you would like to discuss these changes and how they might impact your business or personal finances, contact a member of our team.