The 2024 UK general election has resulted in a new Labour government being elected with a substantial Commons majority in excess of 170.
With the Conservative party reduced to their lowest-ever number of seats, it’s clear that the new Labour administration will be able to govern comfortably.
After 14 years out of office, there are already signs that the party are going to make up for lost time, with a raft of new measures announced in just the first week since the election on 4 July.
The new chancellor, Rachel Reeves, will probably deliver the first Budget of the new government in September.
It’s important for you to consider the financial planning implications of some of the tax changes that Labour have highlighted during the election campaign, and other measures that may be announced, both in the Budget and later during the term of this government.
Read on to find out more about these potential changes.
The new government have committed to providing stability and economic growth
In opposition, and now in government, the Labour Party have continually reiterated their commitment to strict fiscal rules.
Mindful of the mistakes made by the government headed by Liz Truss, this includes allowing the Office for Budget Responsibility (OBR) to review all their financial proposals.
Rachel Reeves has pledged that they will take a strategic approach that provides individuals and businesses with an element of certainty and allows long-term planning.
Reeves has also committed to provide due warning of any major tax and spending policies and will make just one fiscal statement each year.
All these measures are designed to limit the scope for sudden changes in spending or taxation and to hopefully bring about a welcome level of financial stability and certainty.
Several existing taxes will remain unchanged
As a starting point, Labour have confirmed that there will be no increases to three important areas of individual taxation:
- Income Tax
- National Insurance contributions (NICs)
- VAT
Clearly, this confirmation helps provide you with a valuable element of certainty when it comes to your day-to-day financial management.
However, Labour has pledged to continue the freeze in the Personal Allowance for Income Tax until 2028, as announced by the previous chancellor, Jeremy Hunt. This could result in more of your income being subject to higher rates of tax over time.
The commitment to leave Income Tax, NICs, and VAT untouched also raises the question of how the party’s long-term plans will be funded.
Pensions currently remain a tax-efficient way to save for your retirement
Despite much speculation, there have been no announcements regarding changes to the current pension regime by the Labour Party, either before or since the election.
The only commitment made in their manifesto was a pledge of a pensions review, designed to “improve outcomes”, although the lack of commitments does not preclude any changes – such as a standard rate of pension tax relief – from being made.
Labour has said that they will not reinstate the Lifetime Allowance (LTA) that restricted the total amount you could tax-efficiently accrue in your pension fund. This was abolished by the previous government in April 2024.
Given that, and the potential for future changes to be made, you may want to consider maximising your pension contributions now. This is particularly the case as the government incentive of tax relief at your marginal rate of tax make pensions a highly tax-efficient way to save for your long-term future.
Non-dom status will be abolished completely
In the 2024 Spring Budget, the previous government announced the removal of non-dom loopholes.
Labour have announced that they intend to go much further, replacing the current non-dom regime with a “modern scheme for people genuinely in the country for a short period”.
They plan to abolish the remittance basis of taxation which previously meant that you would only pay UK tax on foreign income and foreign gains if and when they are “remitted” into the UK.
Furthermore, the previous government announced plans for remittance basis users in the 2024/25 tax year to only pay tax on 50% of their foreign income for the 2025/26 tax year. However, this will be dropped as the Labour manifesto confirms that it will not introduce such transitional relief.
According to their manifesto, this measure, along with a big investment in HMRC to help reduce tax avoidance, is expected to bring in £5.3 billion.
There will be new restrictions on the use of offshore trusts to avoid Inheritance Tax
As one of a series of measures designed to reduce tax avoidance by “large businesses and the wealthy”, the Labour manifesto also confirmed that the party will end the use of offshore trusts to avoid Inheritance Tax (IHT).
This change, and the changes to non-dom status you read about above, are clearly both subject to legislation passing. It will be important to discover the details of whatever measures they intend to introduce, and when these changes will take effect.
It will become more expensive to educate your children privately
If you’re an Australian expat, it’s likely that you’ll be looking to provide the best possible education for your children during your time in the UK.
The Labour manifesto included a pledge to end the VAT exemption and business rate relief currently enjoyed by private schools. If schools pass this increase on to parents, this will add roughly 20% to the cost of private education.
As it’s safe to assume that this measure will be included in the upcoming Budget, it is worth taking steps now to check how such an increase could affect your financial plans.
In our experience, we know that grandparents can sometimes be willing to help with the cost of school fees as a straightforward and effective way to support their grandchildren.
As well as relieving you of some of the financial burden, it’s also a highly tax-efficient method of transferring wealth between generations.
We’ll keep you updated as changes are announced
The new chancellor will announce her first Budget in mid-September. Because of the size of Labour’s majority, and the length of time until the next election, there are likely to be several contentious proposals around taxation that the new government may want to get onto the statute book as early as possible.
We will, of course, be keeping an eye on the Budget, and the new Pension Schemes Bill that was announced in the recent King’s Speech, and outlining to you how any changes could affect your finances and future plans.
Get in touch
If you need any advice regarding your financial planning, please get in touch with us.
Please note
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC, which is subject to change.
