What Could The General Election Mean For You?

As we are fast approaching the 4^{th of} July General Election, and with polls suggesting that 40% of voters are intending to vote Labour, compared to 19% for the Conservatives[1], it appears highly likely that a Labour Government will be formed. While the specifics of their financial policies and the impact on personal finances remain uncertain, some indications of their plans are emerging.

UK Shadow Chancellor Rachel Reeves suggests that Labour is likely to “mirror” much of the existing economic policy, generally maintaining current fiscal rules and pledging not to raise taxes such as income tax and national insurance[2]. However, there are a couple of areas where changes may be coming, include VAT on private school fees and capital gains tax[3].

Finura Financial Planner, Lydia Richmond, talks us through some key areas of personal finance and financial policy released in the manifestos:

LIFETIME ALLOWANCE AND PENSION TAX RELIEF

As of the 6^th April 2024, the Tories abolished the lifetime allowance for pensions and introduced new lump sum and death benefit allowances, allowing up to £268,275 in tax-free cash, depending on the size of your pension funds[4]. This change has been problematic due to incomplete legislation and delays in corrective measures[5]. However, if either party were to come into power, both plan to honour this change to ensure that people are not penalised for saving into their pensions and aid with the simplification of the pension system.

Neither party has provided detailed plans for managing this issue moving forward. Given this uncertainty and the importance of long-term planning, you should take advantage of the more generous allowances currently available, including the current rate of tax relief offered and the increased annual allowance of £60,000 per annum. Stay in touch with your financial planner to ensure you can promptly adjust to any changes.

CAPITAL GAINS TAX

In recent years under a Tory government, we have seen the Capital Gains Allowance, which is the maximum tax-free capital gain you can make from selling an asset, reduced from £12,300 to £6,000 per annum and now to £3,000. Alongside this, capital gains tax rates on property fall from 28% to 24%, however, even with this, most people disposing of assets who have made a gain have seen their tax liability increase.

Labour has suggested that they may increase capital gains tax rates to be closer to those of income tax to raise more revenue for public services[6]. In light of this, if you are considering taking profits from investments such as property, cryptocurrency, shares, or stocks, it may be prudent to use the existing tax-free allowance before any potential rate increases.

TRIPLE LOCK

Both the Conservatives and Labour plan to maintain the Triple Lock for state pensions, ensuring that state pensions will rise in line with CPI, national wages, or 2.5%, whichever is highest[7] which is designed to allow pensioner’s incomes to stay in line with the cost of living. The Conservatives plan to take this one step further by implementing the Triple Lock Plus, which will mean that the personal allowances of pensioners will also rise, reducing the amount of tax they will pay on their pension income. However, experts suggest that the Triple Lock itself is not sustainable, making the Triple Lock Plus even less credible over time.

VAT ON PRIVATE SCHOOL FEES

Private schools currently enjoy charitable status and therefore do not apply the 20% VAT to their fees. Labour has pledged to impose VAT on these fees if they win the election[8] which will increase the fees parents will have to pay. Many financial advisers believe this will not significantly impact many fee-paying parents, as they generally have enough disposable income to bridge this gap, however, it still will pose a challenge to some parents. Advisers have also warned against paying fees in advance to avoid paying the VAT, as tax legislation often acts retrospectively, and this could be seen as a tax avoidance scheme.

In addition to these changes, both Labour and the Conservatives have discussed simplifying the ISA landscape, pledges to build more affordable housing, and plans to make auto-enrolment for pensions more widely available by lowering eligibility thresholds.

Both leading parties have proposed pledges and changes that could impact your finances, but their specifics and timelines are uncertain.

Finura can help you to ensure that you are utilising the best possible investment vehicles and allowances and will revisit your plan as political or personal circumstances change.

Should you wish to get ahead of the curve and secure current levels of tax relief or capital gains tax, then please get in contact with your Financial Planner or contact us on hello@finura.co.uk to discuss.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

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Sources:

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[1] YouGov, “Voting Intention,” yougov.co.uk, June 4, 2024, https://yougov.co.uk/topics/politics/trackers/voting-intention.

[2] Rathbones Investment Management, “Investment Update: An Election to Snap the Uk out of Its Funk? | Rathbones,” www.rathbones.com, May 24, 2024, https://www.rathbones.com/knowledge-and-insight/investment-update-election-snap-uk-out-its-funk.

[3] George Parker and Josaphine Cumbo, “Rachel Reeves Has ‘No Plans’ to Revisit UK Pension Tax,” www.ft.com, June 5, 2024, https://www.ft.com/content/81c9736f-5aae-463c-9203-258bf9b2e129.

[4] Stuart Adam et al., “Should the Pensions Lifetime Allowance Be Reintroduced And, If So, How?,” Institute for Fiscal Studies, June 4, 2024, https://ifs.org.uk/articles/should-pensions-lifetime-allowance-be-reintroduced-and-if-so-how.

[5] Claire Trott, “Claire Trott: Lost in Post-Lifetime Allowance Quagmire,” Money Marketing, April 25, 2024, https://www.moneymarketing.co.uk/analysis/claire-trott-lost-in-post-lifetime-allowance-quagmire/.

[6] Anna Isaac and Kiran Stacey, “Rachel Reeves under Labour Pressure to Raise Capital Gains Tax to Revive Public Services,” The Guardian, June 6, 2024, sec. Politics, https://www.theguardian.com/business/article/2024/jun/06/rachel-reeves-under-pressure-from-shadow-ministers-to-raise-capital-gains-tax-to-revive-public-services.

[7] Kevin Peachey, “State Pension and Triple Lock: How Much Is It and When Can You Get It?,” BBC News, May 28, 2024, sec. Business, https://www.bbc.co.uk/news/business-53082530.

[8] Julian Bovill, “Labour VAT School Fees Hit but Warn on Avoidance Schemes,” Citywire.com, 2024, https://citywire.com/new-model-adviser/news/ifas-downplay-labour-vat-school-fees-hit-but-warn-on-avoidance-schemes/a2443725.