Tax: the pips will squeak
Watch out for stealth rises and possible increases to inheritance levies
What would a Labour government mean for your finances? The manifesto includes a commitment not to increase income tax, national insurance or VAT. That’s a relief, but Labour will have to cut spending or raise taxes to meet fiscal targets, according to the Institute for Fiscal Studies (IFS). That means it is likely to target more of our money.
Even if Labour doesn’t officially increase tax, we will pay more. “Labour says it will maintain the freeze on income-tax thresholds [until 2028], dragging millions more people into higher tax bands,” says Mattie Brignal in The Telegraph. This fiscal drag will see more of people’s earnings go in tax and many people pushed into higher tax bands.
“The IFS estimates that it is the equivalent to putting up income tax by 6p,” says Angharad Carrick in the Daily Mail. While Labour is keen to say it won’t raise taxes, several weren’t mentioned in the manifesto. “Capital-gains tax (CGT), inheritance tax and the pension lifetime allowance were all absent, leaving the door open for the future.”
Capital gains in trouble
“Those who face CGT in the UK – primarily higher-rate taxpayers and entrepreneurs who realise gains from the sale of residential property, investments, and other chargeable assets – have already seen their annual exempt allowance slashed by the current Conservative government to just £3,000 a year,” Rachael Griffin, tax and financial planning expert at Quilter, told the Daily Mail. We may be in for a “double whammy with higher rates and lower exempt allowances considerably increasing the capital-gains tax take”.
There’s good news and bad news for pensioners if Labour wins. Keir Starmer has committed to keeping the state pension triple-lock. That ensures that the state pension rises every year either by inflation, average earnings, or by 2.5%, whichever is highest. This year that meant the state pension rose by 8.5% (the wage-growth figure) to £11,502.40 a year. But this creates another problem. The personal allowance – the amount of income you can receive before tax is due – is frozen at £12,570. If the state pension rises beyond that level (which it is predicted to do in 2028-2029) pensioners will have to start paying income tax, if they don’t already. Labour has refused to commit to protecting state-pension income from tax.
So pensioners could find themselves hit by a tax bill on their state pension under a Labour government. Finally, Labour may have said it won’t increase VAT, but it is planning to add the tax to private-school fees. “The average fee for a senior dayschool pupil is about £17,500 a year,” says Rachel Mortimer in The Times. “If the full cost of VAT at 20% was passed on to parents, this would jump to about £21,000.”