US bank Citi has predicted the UK’s Labour party will launch a £15bn tax raid on pensions, capital gains and inheritance this autumn to meet demands for higher spending if, as overwhelmingly expected, it forms the country’s next government after polling today (4 July).
YouGov posted its final poll on 3 July revealing that Labour would take 431 seats, while the Conservatives are expected to win 102, followed by the Lib Dems with 72.
Benjamin Nabarro, Citi’s chief UK economist, said Labour would ultimately tax and spend more than the current baseline and that low growth in the UK economy had become entrenched.
Slashing reliefs on pension contributions, inheritance tax and capital gains were easy targets and could raise £8bn a year.
Nabarro said: “We therefore expect some further tightening in the autumn. Here the most likely revenue candidates could be changes in pension contribution relief after Rachel Reeves ruled out changes in the lifetime allowance, reform to capital gains and changes to inheritance tax. These are in addition to revenue changes in Labour’s manifesto.”
Geoff Cook, chair of Quilter Cheviot International, said on LinkedIn: “It is to be hoped the electorate in making clear their rejection of the current Conservative administration do not give unfettered power to the Labour Party, another coalition of very diverse views and ideologies. Assuming the centrists hold sway for the full term is not a given by any means and we have come to see how quickly fortunes and Prime Ministers can change. Keir Starmer will be well advised to keep an eye on the benches behind him, it is where the real opposition will sit.”
James Quarmby, founding partner, private wealth team at Stephenson Harwood said on LinkedIn: “If we are to believe the Guardian, Labour is cooking up a plan to raise CGT rates as early as October this year should they win the election. The Guardian complains that CGT rates are lower tax than income tax rates on salaries, not recognising that the reason for this is (a) inflation and (b) recognition of risk.
“An immediate hike in CGT would be surprising, given the number of times we have heard from Labour that there are “no plans” to raise CGT. If the first thing they do post election is to raise CGT then this will look dishonest – which would not be a great start for the new government. Accordingly, I’m not convinced this will actually happen (at least not for a while).
“As for IHT, it seems that some in Labour believe that BPR on farmland is used by rich people to avoid IHT and that the sooner BPR is restricted to £500k per person the better.
“We know the BPR suggestion comes from the IFS and I have no doubt that Labour will be “looking at this”, but one hopes that common sense will prevail.
“If we want to be a country of innovation and enterprise then levying a 40% tax on a family business when passing down to the next generation is not the way to do it.
“If Labour is truly pro-business then they will give these ideas short shrift.”
While Forth Capital’s Stephen Kiggins set out in a briefing note how the UK’s election outcome could impact the finances of a British expat on the basis of their election manifesto in terms of tax changes and other financial planning implications.
UK Pensions
Lifetime Allowance (LTA)
The abolition of the Lifetime Allowance (LTA) in the chancellor’s 2023 Spring Budget was a welcome surprise for many, removing the £1,073,100 limit on the amount of cumulative UK pension savings that could be drawn by individuals without incurring an additional tax charge.
And whilst Labour were initially vocal in their opposition to the abolition of the LTA, indicating that they would re-instate it if they won the 2024 election, they have subsequently softened their stance, acknowledging that the practicalities of doing so will be extremely difficult.
However, with shadow chancellor Rachel Reeves promising a “pensions review” if Labour are elected, a degree of uncertainty hangs over the possible re-introduction of the LTA, and this has raised the question for some expats as to whether they should consider crystallising their UK pensions earlier than otherwise planned [or consider transferring their UK pension assets to a QROPS to trigger a crystallisation event] to avoid the potential consequences of the LTA being re-introduced at some point in the future. When considering this option however it’s imperative that all relevant factors are taken into consideration and are discussed with a qualified financial advisor and pension transfer specialist.
Pension Commencement Lump Sum (PCLS)
Further to a BBC radio interview [on Friday, 28 June] in which Keir Starmer was asked whether the 25 per cent tax free Pension Commencement Lump Sum [PCLS] withdrawal from a UK Pension would be at risk from a Labour government, a Labour spokesman subsequently went on record to clarify and confirm that “The ability to withdraw 25 per cent of your pension as a tax-free lump sum is a permanent feature of the tax system and Labour are not planning to change this”. Asked whether Labour was making a solid promise not to change the current system, as opposed to simply having “no plans” the spokesman said, “It’s a firm commitment.”
UK State Pension
Triple Lock policy
Both the Conservative and Labour parties have committed to keeping the ‘Triple Lock’ on the UK State Pension. This ensures that it rises each year by whichever is the highest between average annual earnings growth from May to July, the Consumer Price Index (CPI) inflation rate in the year to September, or 2.5 per cent. New and Basic State Pension payments increased by 8.5 per cent in April. Over the current financial year, the full New State Pension is worth £221.20 each week, some £11,502 in annual payments.
The UK State Pension is paid to expats worldwide who have reached the qualifying age and have paid enough National Insurance contributions.
However, you will only get an the Triple Lock indexed increase every year if you live in:
the European Economic Area (EEA) or Switzerland; or a country that has a social security agreement with the UK that allows for cost of living increases to the State Pension.
‘Frozen’ UK State Pensions
None of the political parties have addressed the issue of ‘frozen’ State Pensions in their manifestos ahead of the General Election. An estimated 450,000 expats living in countries that do not have a reciprocal agreement with the UK (including Australia, Canada, South Africa, Antigua, Malaysia and Thailand) are currently affected, with the level of their UK State Pension payments ‘frozen’ since their point of emigration – even if they had paid the maximum number of UK National Insurance qualifying years during their working life.
Commenting on the Labour manifesto, Ms Melville-Gray [spokesperson for the International Consortium of British Pensioners], said: “While we commend the Labour commitment to review the pensions landscape and improve pensions outcomes, today’s [manifesto] announcement remains a missed opportunity to address the longstanding ‘frozen pensions’ scandal.“ “Labour backed an end to this cruel policy in 2019. It is disappointing that this ‘Government in waiting’ has made no such pledge today. We sincerely hope that Labour will stand up to its commitments, and conducts a full review of the State Pension to include addressing this deeply harmful, purely arbitrary policy.”
UK State Pension Age
State Pension age is due to be independently reviewed after the election. The State Pension age is currently 66 and is due to increase to 67 by 2028, and to 68 by 2046.
Inheritance Tax (IHT)
After occupying a prominent part of the policy debate over the past 12 months, it had been reported that (in the same way as with the Pensions Lifetime Allowance) the Conservative Party was considering scrapping the current IHT framework altogether as a potential vote winner – with Chancellor Jeremy Hunt declaring the tax “unfair” and “profoundly anti-Conservative”. However, any commitment to abolish (or indeed even reduce) IHT has ultimately been omitted from the Conservative’s election manifesto.
And whilst Rachel Reeves has previously said that she has “no plans” to change the current IHT thresholds or rates [and the only reference to IHT in Labour’s manifesto was in relation to ending the use of offshore trusts to avoid IHT], the possibility of reforming this tax in the future remains a distinct possibility.
We will continue to monitor Labour’s position on IHT very carefully as it evolves post-election and update accordingly.
Stamp Duty Land Tax (SDLT)
Labour has confirmed that for non-UK residents it will increase the current rates1 [detailed below] of Stamp Duty Land Tax [as detailed below] on purchases of residential property by 1%.
Capital Gains Tax (CGT)
Rachel Reeves previously indicated that Labour had “no plans” to increase Capital Gains Tax (CGT) receipts by aligning CGT rates with Income Tax rates, as had been widely speculated, but this does not rule out the possibility of CGT rate increases in the future to align the taxes more closely.
For expats with a UK residence, or one or more buy-to-let investment properties that they potentially intend to sell in the future, this will need to be monitored carefully and the potential negative impact it could have on the funds realised from those assets understood as part of your financial planning.
