29 April 2015 by Michael Culver

Political Parties Tax Promises

With the general election fast approaching it is interesting to compare and contrast the various political parties’ manifestos in relation to their tax plans.

Policies which have drawn great attention are those related to Inheritance Tax, Income Tax, VAT and the introduction of new taxes, such as Mansion Tax.

We have examined a few of the proposals as follows:

Inheritance Tax (IHT)

Probably the most desirable, but possibly unachievable, is the Conservative Party’s campaign for either increasing the IHT threshold from £325,000, or introducing an additional tax free amount for family homes.

The latter proposal is that an additional relief of £175,000 per person on a family home could be transferred between married couples. This means that adding the new relief to the existing £650,000 combined allowance for married couples would result in properties worth up to £1m escaping IHT.

On the other hand, UKIP is certain that IHT could be abolished altogether. They plan to do this by cutting the foreign aid budget by £9bn; scrapping the High Speed 2 scheme (which they estimate will save £3bn between now and 2020), setting a migrants’ work permit cap; and leaving the EU hoping that would save a further £10bn a year. 

Another IHT pledge has been given by the Green Party. It is in relation to gifts given while a person is still alive. Gifts are currently inheritance tax free provided the person making the gift survives 7 years and the gift is not made to a trust. The Green Party believes gifts should now be subject to a tax charge.

The Green Party also proposes changing how the tax is charged and making it a recipient tax rather than a tax on the deceased person’s estate. The party’s reasoning for this pledge is preventing the accumulation of wealth and power by a privileged class and encouraging people to make gifts to a wider range of people in their wills.

Labour and the Liberal Democrats are surprisingly quiet on Inheritance Tax which indicates no changes if either of their parties are elected.

Capital Gains Tax

There is very little in the respective parties’ manifestos about Capital Gains Tax although the Liberal Democrats do stress a desire to remove certain reliefs and the Green Party suggest removing the annual allowance which they estimate will raise £3.8 billion per year. 

 Income Tax

The Green Party believes that raising income tax and introducing a “wealth tax” of 2% is necessary for those with assets worth more than £3m. They also propose increasing the highest income tax band to 60%.

A more favourable manifesto seems to be the Liberal Democrats’ and the Conservative Party’s commitments to raising the personal allowance to £12,500, meaning people on the minimum wage would pay no income tax. The Liberal Democrats suggest that this will be a two stage process with a £11,000 personal allowance introduced as early as April 2016.

The Conservatives are considering increasing the rate at which tax payers commence paying 40% of their income to £50,000 whilst UKIP suggests they will increase this to £55,000.  

Staying with UKIP for the moment they are also proposing a new 30% rate of tax for those earning between £43,500 and £55,000. UKIP also hope to increase the personal allowance to £13,000.

Labour wish to penalise high earners by increasing the 45% rate of tax to 50% for those earnings over £150,000; whilst benefiting lower earners by introducing a new 10% rate.

National Insurance

The Liberal Democrats plan to raise the threshold for National Insurance contributions whilst Labour promise not to increase the amounts of National Insurance currently payable.

The Green Party plan to abolish the upper threshold which means more NI for higher earners which they believe could raise £28 billion a year.

Pension Tax

An important part of the Labour Party’s campaign is cutting pension tax relief on incomes over £150,000 from 40% to 20%. Their plan is to reduce the annual allowance for what can be saved free of tax in an individual’s pension to £30,000 and the lifetime allowance to £1m. These reductions seem to be a concern to both middle-income savers and high earners.

VAT and New Taxes

Other significant proposals include the Conservatives’, the Liberal Democrats’ and the Labour Party’s promises not to increase VAT or to extend its range to food, children’s clothes, books, newspapers and public transport fares.

Labour plan to achieve/fund this by introducing a “mansion tax” on properties worth over £2m. Similar to the Labour Party, the Liberal Democrats’ plans entail a mansion tax. However, theirs adds council tax bands, meaning paying more for larger properties.

On the other hand, the Green Party considers that VAT should be replaced with green taxes and they want charges made on cars, wood, metals and minerals. Such plans are at odds with those proposed by UKIP who seem keen to remove green energy (referring to wind turbines as “ugly”) and revitalizing the coal industry. 

The Green Party also hopes to set higher taxes on alcohol, tobacco, and imports from within the EU.

Something that may attract voters are the Green Party’s pledges to raise public spending to up to 46% of Gross Domestic Product, to focus on the improvement of the NHS and to introduce a nappy tax aimed at reducing the number of disposable nappies sent to landfill and incineration. The party is ready to reconsider the latter if more nappy treatment facilities are created in the UK.

Amongst the new taxes is the Land and Buildings Transaction Tax proposal by the Scottish National Party (SNP). Its purpose is replacing Stamp Duty and it aims to make tax payments proportionate to the individual’s ability to pay. Criticisms suggest this targets higher earners, but SNP believe it will help first time buyers.

The Northern party’s campaign includes an “under-occupancy penalty” which states that having one bedroom more than the calculated allowance would mean a reduction in housing benefit of 14%; and with two “spare” bedrooms a tenant will lose 25% of this benefit.

Tax Enforcement

Both Labour, the Liberal Democrats and UKIP all criticise HMRC and want tougher enforcement on Tax evasion. Labour refers to “aggressively pursuing Tax avoiders”, the Liberal Democrats state the need for tougher action on Tax evasion whilst UKIP wants tougher enforcement of Corporation tax and what they perceive as Tax dodging by large multinational companies.  

Likewise the Green Party wants to introduce tougher Tax enforcement measures and illegalise Tax avoidance schemes.

Whichever party is elected it seems Tax enforcement is very high on the agenda.

So who should I vote for?

Whilst there are many factors to be taken in to consideration when deciding who to vote for tax is an issue that generally affects all of us as some stage in our lives.  No matter which Party forms our next Government it will certainly be an interesting 4 years for tax advisors.

If you think that any of these changes might affect you or you consider that you need advice with regard to Tax Planning please contact Michael Culver

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