I have recently been thinking that elections should probably all have their own theme tunes…bear with me. If this is right, and one were in the business of pulling a theme tune out of the hat for this one, ‘Hey, Big spender’ springs to mind…
Theme tunes notwithstanding, it is interesting to see the public spending pledges made by both Labour and the Conservatives, and of course, the money does rather have to come from somewhere. Which leads neatly to tax.
While Sajid Javid has previously said he is a ‘low tax guy’, the Conservative manifesto is not rife with rate cuts – equally however there are no unexpected or dramatic rate hikes. Instead, we see a moderate approach of restricting cuts and so finding more spending money for the £13.8bn rise in spending across government departments, which the Conservatives have promised, will take effect by 2021. So overall the Conservative tax promises seem fairly unexciting – which in many ways is a good thing as it provides a measure of certainty.
In sharp contrast to the Labour proposals, the Conservatives guarantee no increase to income tax. They also promise no increase to National Insurance. This is part of the ‘triple lock’, which guarantees no increases in income tax, national insurance or VAT for five years under a Conservative government. Indeed, National Insurance would be reduced for many, with a promise to raise the national insurance threshold to £9,500 in April next year, with the intention being to raise the threshold to £12,500, although no definite timescale is set out for this.
Capital gains tax
The manifesto is silent on capital gains tax other than Entrepreneurs Relief, with a promise to review Entrepreneurs Relief. Given that capital gains tax is outside the ‘triple lock’ there is of course the possibility that the rate could increase and/or that reliefs could be removed.
This however is rather different to the promise that under a Labour government capital gains rates would be aligned with income tax rates, so that those earning above £125,000 a year would pay capital gains tax at 50%.
The manifesto does not focus on IHT, so it seems (unsurprisingly, given the increased spending commitments) that Sajid Javid’s musings at the conference in the autumn on scrapping IHT are, at the very least, not a priority. One should of course not forget that the Office for Budget Responsibility predicts that IHT will raise £5.3bn this year.
It will be interesting to see, if we have a Conservative government after the election, if some of the proposals made by the Office for Tax Simplification in its report on IHT this summer, are enacted. These included changing the potentially exempt transfer regime so that someone giving away assets during their lifetime would have to survive five rather than seven years for the gift to fall out of account, but also reducing tapering for potentially exempt transfers, so that if one did not survive five years the entire value of the gift would be subject to IHT.
One area where Conservative and Labour tax policy seems in agreement is on increasing the tax costs for non-resident investors in UK property. The Conservatives plan to tackle this through the introduction of a stamp duty surcharge of 3%, which would apply to purchases of UK property by non-resident entities and individuals. This would be in addition to the existing 3% surcharge on second homes and buy to let properties.
There is – as expected – nothing to indicate that the taxation of non-domiciliaries will change, so that remittance basis taxpayers should have some reassurance their position will remain as at present.
Corporation tax rates will not – as had previously been expected – be reduced but would equally not be increased, instead remaining at current 19% rates. Interestingly the decision not to proceed with a reduction in corporation tax rates to 17% is estimated to raise £6bn, so while not a tax raise it is clearly a money raising measure.
However, there is a commitment to reduce business rates, improve R&D credits by increasing the rate from 12% to 13%, reduce construction tax and reduce employers National Insurance Contributions.
Unsurprisingly, there is a promise to ‘tackle tax evasion and avoidance and reduce opportunities for aggressive tax planning’. In detail, a series of new measures would be introduced including doubling the maximum prison terms to 14 years for those found guilty of having committed tax fraud.
Of more immediate day-to-day relevance is the commitment to create a new section of HMRC focussed on anti-avoidance ‘the Anti-Tax Evasion unit’. It seems likely that this unit would seek to bring together the ever increasing information which HMRC now receives from various worldwide reporting measures, most notably the Common Reporting Standard.
In addition, there is a promise to consolidate existing anti-evasion and avoidance measures and powers.
Finally, a new package of anti-evasion measures would be introduced.
Certainly, consolidation of the reams of anti-avoidance measures would be welcomed and make the task of navigating the ever-expanding statute book simpler, which, more importantly, would mean taxpayers could have greater clarity about what is and what is not acceptable tax planning.
While Sajid Javid has previously said he is a ‘low tax guy’, the Conservative manifesto is not rife with rate cuts – equally however there are no unexpected or dramatic rate hikes.