UK general election 2024: Labour's manifesto and tax

The Labour Party has been forthright in its plans for taxation, setting out its priorities last October to levy VAT on private school fees, close loopholes in the taxation of carried interest, abolish non-dom tax status (which was proposed by the Conservative government in the Spring Budget) and increase the Stamp Duty Land Tax (SDLT) surcharge for overseas property owners and the Energy Profits Levy (EPL).

Subsequently, further tax pledges have been set out in its "Labour's Business Partnership for Growth" plan, the recent tax policy document and its plan to close the "tax gap". As had been widely reported, no other tax pledges other than those already set out, featured in the manifesto.

Taxes that Labour will not increase

Labour's manifesto has confirmed that the party will not increase taxes on working people – pledging that it will not increase national insurance, the basic, higher or additional rates of income tax, or VAT (the three biggest revenue-generating taxes).

The manifesto has also confirmed that Labour will cap corporation tax at the current level of 25% for the entire parliament but will act "if tax changes in other countries pose a risk to UK competitiveness". This pledge featured alongside a promise to retain a permanent full-expensing system for capital investment and the annual investment allowance for small business.

With the manifesto confirming Labour's widely publicised tax policy plans – and holding no surprises but scant further detail – in what areas can tax changes be expected in the event of a Labour government?

Taxes not mentioned in the manifesto

Although Labour has previously said that there will be no wealth tax nor any increase in the rate of Capital Gains Tax (CGT), more recently Sir Keir Starmer has declined to rule out increasing CGT in the future (or even equalising CGT and income tax rates) and there was no mention of CGT in the manifesto (other than in the context of closing "loopholes" in the private equity industry). 

Aside from reconfirming that Labour would increase the rate of SDLT on purchases of residential property by non-UK residents by 1%, no other mention of SDLT was made. Sir Keir has, however, stressed that he does not want to increase taxes for working people so perhaps the taxation of investment income (such as second homes) might be looked at rather than SDLT on straightforward purchases of a main home.

The shadow chancellor, Rachel Reeves, has previously said that she has no plans to change inheritance tax (IHT). The only mention of IHT in the manifesto was in relation to ending the use of offshore trusts to avoid IHT.  

Review of reliefs, exemptions and allowances

Despite Labour saying that it will not increase taxes, the messaging is nuanced: although rates may not rise, there has been little mention of changes in allowances, reliefs or exemptions – all of which have an impact on the tax take. The shadow chancellor has previously said she would look into "every single tax break" – and if CGT was an area of focus for Labour, reliefs such as Business Asset Disposal Relief (formerly Entrepreneurs' Relief) could well be one of those reliefs in the firing line.

Labour has also said it will maintain the freezing of the income tax thresholds (until 2028) – which some view as a "stealth" tax rise.

Despite Labour's recent U-turn on its policy to reintroduce the pensions lifetime allowance (following its abolition by the current government) and suggestions that Ms Reeves had no plans to change the current regime of pensions tax relief, there was no mention of either in the manifesto. There was, however, confirmation of its promise to undertake a pensions review, suggesting that this is still an area for review.

Apply VAT and business rates to private school

Labour reconfirmed its commitment to apply VAT and business rates to private schools but there was no further detail in the manifesto on when this change will take effect and whether retrospective legislation or anti-forestalling rules will be introduced. There was no mention of wider changes to the VAT rules in the manifesto.

Taxation of carried interest

The manifesto sets out Labour's plans to raise £565 million a year from closing the carried interest tax "loophole" for private equity managers, highlighting that it was the only industry where performance-related pay is treated as capital gains. It is not clear from the manifesto, however, how this will be achieved. The tax treatment of carried interest is a technical area and there are several routes that could be explored to change the rules.

Labour will also need to walk a tightrope between raising tax revenues and preserving the UK's status as an attractive place for investment fund managers, and it is hoped (as the shadow chancellor has recently said) that some form of consultation will be launched on the changes.

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Non-dom loopholes addressed

Abolishing the current preferential tax regime for non-doms was a key Labour pledge before it was adopted by the chancellor, Jeremy Hunt, at the Spring Budget. Labour has already promised to go further than the Conservative plans and, while there is little detail of its plans in the manifesto – other than a commitment to end the use of offshore trusts to avoid inheritance tax – Labour has previously rejected the more generous plans announced by the Conservatives and suggested that it will not allow the 50% transitionary rate of tax for 2025-2026.

Windfall tax on energy giants

Although part of Labour's policy (to extend the EPL to March 2029) was adopted by the Conservative government at the Spring Budget, no increase in the rate was announced and so, as expected, the manifesto repeated Labour's intention to increase the EPL by 3%. The manifesto also commits to removing the "unjustifiably generous" investment allowances.

No mention was made of the Electricity Generator Levy (which is due to end in March 2028), so it is possible that Labour may look to extend this by another year (to March 2029) as well.

Closing the tax gap

The party has already set out in detail its plan to close the tax gap. The manifesto reconfirms that Labour will modernise HMRC and change the law to tackle tax avoidance, increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC. This will be combined with a renewed focus on tax avoidance by large businesses and the wealthy. Labour's plans for closing the tax gap will have implications for the UK tax disputes and taxpayers may face an increasingly aggressive HMRC.

Employee Share Plans

The manifesto does not contain any policies on employee share plans. Following HM Treasury's recent consultation on tax-advantaged all-employee plans, the industry hopes that improvements to these popular plans will be taken forward by Labour.

Fiscal stability and Labour's tax policy

To avoid a repeat of the consequences of Kwasi Kwarteng's mini-budget, Labour's manifesto confirms its plans to introduce a new fiscal lock, guaranteeing that any fiscal event making significant tax and spending changes will be subject to an independent forecast from the Office for Budget Responsibility (OBR). As these OBR forecasts take 10 weeks to commission, this makes a first budget under a Labour government more likely in the autumn (and rules out an emergency budget shortly after the election).

The manifesto also reconfirms Labour's proposal for one major fiscal event per year, which it has previously said will be in the autumn followed by a restated forecast – a spring statement – in March. This will be a reversal of the current fiscal policy of a budget in the spring followed by an autumn statement. Labour has also promised to publish a roadmap for business taxation for the next Parliament so that businesses can plan investments with confidence.

Osborne Clarke comment

The manifesto has reconfirmed Labour's tax priorities, which include policies to create economic stability, deliver growth through business partnership and clamp down on tax loopholes and avoidance. The devil, however, will be in the detail and, with no further information on its policies in the manifesto, we may need to wait until Labour's first fiscal event later in the year, should it win the election, to find out more.