With the upcoming general election just a couple of weeks away, we take a look at the key tax policies proposed by the two main parties for individuals and businesses.
Income tax
Labour has proposed new rates of income tax, with those earning over £80,000 subject to the additional rate of 45% (currently £150,000) as well as a new ‘super-rich’ 50% band for those with income over £125,000. In addition, they have committed to freezing rates for those earning less than £80,000.
They have also proposed to bring dividend taxes in line with the higher rates of income and to abolish the £2,000 dividend allowance.
The Conservative party has promised not to raise the rates of income tax and have proposed to extend the threshold for national insurance contributions from £8,632 to £9,500 in April 2020 with the aim of raising this to £12,500 in the future.
Capital gains tax
As well as bringing dividends in line with income tax rates, Labour propose to do the same for capital gains. They are also proposing to remove the annual exemption (currently £12,000) such that all capital gains above a minimum of £1,000 will be subject to tax.
The Labour party has confirmed that they will scrap entrepreneurs’ relief with the Conservatives also pledging to carry out a review and reform the relief available.
Inheritance tax
Labour state that they will ‘reverse George Osborne’s inheritance tax cut’ which we can only assume means the removal of the residence nil rate band (currently £150,000) which applies where a home is passed to a child or grandchild.
Corporation tax
The Labour party has proposed to reverse corporation tax cuts made by the Conservative party, increasing the main rate back up to 26% over three years, as well as reintroducing the small profits rate, which will reach 21% by 2022.
Labour also propose to introduce an inclusive ownership fund (IOF) for large companies who will be required to share up to 10% of the profits of the company with employees. Dividends will be distributed equally among all but capped at £500 with any excess going to the climate apprenticeship fund.
The Tories have announced that the proposed corporation tax cut to 17% will not go ahead from April 2020, maintain the current rate of 19%.
Labour has also proposed to phase out R&D tax credits for large corporations as well as abolishing the Patent Box regime. They have confirmed, however, that the R&D tax relief scheme for SMEs will be retained. A wider review of corporate tax reliefs has also been promised, with the aim of reducing reliefs by £4.3billion.
Conversely, the Conservatives have pledged to increase the R&D relief rate under the large company’s scheme from 12% to 13%.
Both parties have committed to introduce new measures to tackle tax avoidance.
Property tax
A second homes tax will be introduced by the Labour party for holiday homes which will be equivalent to 200% of the council tax bill of the property.
The Conservative party has proposed a 1% increase in the rates of SDLT payable for non-residents purchasing UK residential property.
VAT
The only change to VAT proposed by Labour is to scrap the current VAT exemption for those paying private school fees. No proposed changes by the Tories either, other than scrapping the ‘tampon tax’ (on leaving the EU) and a pledge that they will not raise VAT.