With the claim to raise £83 billion through reforms to taxation, we look here at the key tax pledges in their proposal to bring about 'real change'.
The Labour Party has made it quite clear that they "will reverse George Osborne's inheritance tax cut", but what does this mean?
Currently, individuals have a Nil Rate Band of £325,000, on which they are charged inheritance tax at a rate of 0%. Above this amount, an individual's estate may be subject to inheritance tax at a rate of 40% on death.
In 2015, George Osborne announced the introduction of an additional inheritance tax free allowance, the Residence Nil Rate Band, subject to meeting certain criteria. For the tax year 2020/21, the Residence Nil Rate Band could potentially increase an individual's inheritance tax free allowance by £175,000.
Since the introduction of the Residence Nil Rate Band, married couples have had the potential to benefit from a £1 million inheritance tax free allowance.
The Labour Party plans to abolish the Residence Nil Rate Band.
Under the Labour Party's current plans, individuals will only be able to benefit from their ordinary Nil Rate Band of £325,000. As the current plans do not affect the transfer of the Nil Rate Band between spouses, a married couple could still potentially benefit from an inheritance tax free allowance of £650,000.
Income Tax and National Insurance
The Labour Party has promised to freeze income tax and National Insurance rates for the lowest paid 95% of the population.
For those individuals who earn more than £80,000 however, the same cannot be said. The Labour Party has pledged to increase the income tax rate for those who earn more than £80,000 to 45% and for those who earn more than £125,000, a new "super-rich" rate of 50% is to be introduced.
Value Added Tax ("VAT")
The Labour Party considers VAT to hit the poorest hardest and have guaranteed that there will be no increases in the rates of VAT.
Whilst there may be no changes to the rates of VAT, the Labour Party plans to introduce a charge of VAT on private school fees.
Dividend Income and Capital Gains Tax ("CGT")
The Labour Party believes that "returns from wealth should not be taxed less than those from income" and will therefore tax dividend income and capital gains at the same rate as income tax and will remove the lower income tax rate for dividends.
They have also said that there will be no separate annual exempt allowance for capital gains or dividend income above de minimis thresholds of £1,000.
In relation to CGT, the Labour Party has promised to "scrap" Entrepreneurs' Relief. Under the current rules, entrepreneurs may be able to benefit from a lower rate of CGT of 10% on gains on qualifying assets when they dispose of all or part of their business, subject to certain conditions.
The Labour Party has stated that main residences will continue to be exempt from CGT.
The Labour Party wants to introduce an annual levy on second homes that are used as holiday homes. The annual levy will be equivalent to 200% of the current council tax bill for the property.
As stated in the Labour Party's Funding Real Change document, as at October 2018, 251,654 properties were classed as 'second homes' for council tax purposes in England.
Tax Transparency and Avoidance
The Labour Party has pledged to enact "the most comprehensive tax transparency and avoidance programme ever enacted in government".
This is split into four parts:
- Measures to improve transparency;
- Stronger law enforcement and support for HMRC;
- Eliminating legal loopholes; and
- Cross-border action on avoidance and evasion.
The Labour Party has had the most to say about taxation, despite detail being light in their manifesto.
With the Labour Party's aim to "create a fairer tax system in which the wealthy pay their way", and reforms to taxes such as inheritance tax, income tax and CGT, a Labour Government could have a significant impact on wealthy individuals.
Click here to read the summary of the tax aspects of The Conservative Party manifesto.
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