What could a Labour government mean for your tax liability in 2024/25?

Last month, Labour secured a historic victory in the general election after 14 years of the Conservative party being in power.

Though the outcome had been widely anticipated, what is less clear is exactly how Labour might change tax legislation. Many expect that Labour will make tax changes, but the party has so far only announced a handful of proposals.

Read on to learn more about what Labour has announced so far, other areas that the new government might make changes in, and how this could affect your tax liability in 2024/25.   

The Labour Party promised not to raise Income Tax, National Insurance, or VAT

In their manifesto, Labour made certain pledges specifically related to keeping taxes for working people as low as possible. This included committing to not raise the rates of Income Tax, National Insurance, or VAT.

Additionally, they made some pledges about tax changes that they planned to implement if elected. These included:

• Making private school fees liable for VAT

• Reforming the non-dom tax system

• Increasing Stamp Duty Land Tax for non-UK residents

• An additional windfall tax for oil and gas companies.

The manifesto, though, didn’t make any comments about other tax legislation that may change while they are in power.

Labour may make changes to other tax rules that could affect you in the coming years

Labour has been clear about their intention to hold rates of Income Tax, National Insurance, and VAT steady. However, they’ve yet to comment on how they might adjust other tax rules.

Capital Gains Tax

So far, Labour has made little mention of Capital Gains Tax (CGT). This means it could be an area where they decide to make changes.

The previous government reduced the Annual Exempt Amount for CGT in recent years, from £12,300 in 2022/23 to £6,000 in 2023/24, followed by a further drop to £3,000 in 2024/25. It’s possible that Labour may consider removing the Annual Exempt Amount, though the Guardian reports that they have ruled out applying CGT on the sale of your home.

Sky News reports that Labour might consider raising CGT rates to bring them in line with existing Income Tax rates, which currently stand as follows:

As you can see, bringing CGT rates in line with Income Tax rates could mean a significant increase.

Pensions tax

In their manifesto, Labour committed to upholding the triple lock on the State Pension and to launching a pensions reform review, suggesting that pensions could undergo some changes.

MoneyWeek reports that the review is designed to help provide better outcomes for savers, including:

• Investing pensions more productively to help grow the economy

• Giving retirees more options for accessing their pension

• Tackling the “small pots” problem, helping defined contribution (DC) pension holders to keep track of their retirement savings more easily.

The Institute for Fiscal Studies (IFS) has suggested that the government consider a change to the rate of tax relief offered on pension contributions. Currently, you can usually receive tax relief at your marginal rate of Income Tax on pension contributions that don’t exceed the Annual Allowance.

The IFS has suggested amending this so that everyone, regardless of their level of income, receives a flat rate of 30% tax relief on pension contributions. This would mean that higher earners receive a lower rate of tax relief on contributions than they do now. Basic-rate taxpayers would receive a boost to the rate they currently receive.

It is possible that retirees may pay more Income Tax in the coming years as the State Pension rises with the cost of living. The Personal Allowance – the threshold above which Income Tax becomes payable – has been frozen until April 2028. So, as the State Pension rises, it’s possible that more retirees who receive the full State Pension may be liable for Income Tax.

Inheritance Tax

Inheritance Tax (IHT) is another topic that featured very lightly in Labour’s manifesto.

Professional Paraplanner reports that the new government may consider changes to Business Relief and Agricultural Property Relief. It also reports that the party may be considering changing the way that pensions are taxed on death.

Currently, pensions are considered outside of your estate for IHT purposes, making them a tax-efficient way to pass on wealth to your beneficiaries. If the government were to reform this, your pension might count towards your taxable estate when calculating the IHT bill after you pass away.

Any tax changes are likely to be introduced following a review, so you may not be affected in this tax year

It’s impossible to predict exactly what new chancellor Rachel Reeves will announce in her first Budget, which is set to take place on 30 October.

That said, any amendments to tax legislation are unlikely to happen immediately. As you’ve read above, most proposed changes will go through a review and consultation before they are implemented. So, you may not be personally affected in 2024/25.

Get in touch

If you’re concerned about how changes to tax legislation could affect your wealth, we can help. Our team of financial planners based in Towcester has many years’ experience assisting our clients to build tax-efficient financial plans that support them in achieving their goals.

Email theteam@fortitudefp.co.uk or call us on 01327 354321 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.