What the new Labour government means for tax matters

Tax brackets and reliefs

Labour has not promised any increases in income tax rates, but it has not proposed any increases in tax brackets either – which would create a “fiscal burden”. Many people will move into a higher tax bracket simply because of rising wages. The government intends to keep tax brackets frozen at their current levels until 2028, so overall tax revenue in the UK will rise in the meantime.

Social security contributions

Labour has said it has no intention of increasing national insurance contributions for individuals.

Capital Gains Tax

Labour plans to “close the loophole” whereby interest on private equity is currently taxed at 28% because it is treated as a capital gain. The rate that might apply in the future has not yet been confirmed. Although it has been reported that where a fund manager exposes their own capital, capital treatment might be allowed (as in other countries): there may be a consultation later this year on when interest on equity will be taxed as income.

The Labour manifesto does not mention any other CGT measures, and Labour has ruled out introducing CGT on the disposal of a principal residence. However, it has been reported that they are drawing up a list of options to increase tax revenues in the future if necessary, and raising the CGT rate is one of these options. It has been reported again that Labour will consult before making any changes.

Non-home status

While the Conservative government has already proposed abolishing the UK tax system for non-domiciled people, the Labour manifesto merely confirms that it plans to abolish the “non-domiciled loophole” but does not make any specific proposals for a replacement system for short-term UK residents.

Labour said in April 2024 that it supported many aspects of the original proposals, but would make some changes if it formed the next government. The most important of these would be to ensure that all overseas assets in trusts were subject to UK inheritance tax. It would also not introduce remittance tax relief in the first year of the new rules. Keep up to date with changes affecting non-residents here.

Inheritance tax

Apart from the proposals on offshore trusts, there was no other reference to IHT in the Labour manifesto, however it has been reported that Labour is developing tax-raising options that include significant changes to IHT. Reports suggest that this could involve abolishing or changing the rules on business tax relief and farmers’ tax relief to increase tax revenues without changing the base rates of IHT.

It is possible that similar changes will be considered for lifetime gifts, where currently no inheritance tax is payable if the person lives more than seven years after making the gift.

Inheritance and Gift Tax is often referred to as the UK’s ‘most hated tax’, so it is unlikely that changes will be made without consultation. There are rumours that Labour intends to submit all options for reform to the Office for Budget Responsibility for consideration before any proposals are announced and a consultation period is announced.

Pensions

Labour had previously said it would reintroduce the lifetime pension levy. However, this plan was abandoned during the election campaign, which could make other changes to pension tax relief more likely in the future.

Currently, individuals receive tax relief (up to 45%) on pension contributions and can pass on their pension free of IHT on death (more information here). It is rumoured that this IHT is being considered as part of a wider review of capital duty (see above).

In addition, Rachel Reeves has previously campaigned for a reduction in pension contribution tax relief for high earners, arguing that introducing a flat 33% rate of relief “would be a welcome boost for basic rate taxpayers and a cut in the savings subsidy for higher earners”.

Under current rules, individuals can pay up to £60,000 a year into their pension, and can also use any unused elements of this annual allowance from the previous three tax years. Higher earners may want to consider topping up their pension contributions ahead of any changes – read more in our planning guide.

Tax on civil law transactions

Labour plans to increase the SDLT surcharge levied on non-UK nationals buying residential property by 1% (taking the surcharge to 3%).