As the General Election approaches and polls indicate a strong Labour advantage, there is a lot of speculation about the implications of a new government for the UK, especially in terms of tax policies. If Labour do secure a victory, what is the likelihood of reforms to Inheritance Tax and Capital Gains Tax?
Recent reports indicate the Labour party is considering options for raising money for public services through a shake up to both Inheritance Tax and Capital Gains Tax.
While there are currently no concrete details, many of us will have paid close attention to the news. It’s especially relevant to our clients who own business or agricultural assets, as it seems reliefs relating to these areas could be in the spotlight, potentially impacting estate planning strategies.
What has Labour said about Inheritance Tax and Capital Gains Tax reform?
Labour has not officially confirmed any changes to Inheritance Tax or Capital Gains Tax.
During the election campaign, the party has emphasised its focus is on economic growth in general. The manifesto pledges no increase to income tax rates, national insurance or VAT. A Labour spokesperson has also stated there are fully costed plans in place, reiterating: "Nothing in our plans requires any additional tax to be increased".
But there have been some raised eyebrows over the lack of detail on taxation from both the main parties, as whoever ends up in government will face a difficult financial scenario. Areas not specifically addressed in the manifestos, such as Inheritance Tax, could therefore still be subject to changes in the future.
A recent report from the Guardian claims the Labour Party is considering a number of measures to bring in additional funds if they win the election. One senior source is quoted as saying: "Fiscal credibility means reforming tax as well as prudent borrowing.”
These measures include raising a possible £8bn through increases to Capital Gains Tax. In addition, there's scope for significant changes to Inheritance Tax, with a consultation on the possibility of scrapping or updating of rules on agricultural land and business relief.
Who could be impacted by changes to Inheritance Tax or Capital Gains Tax?
At the moment, there are no specific details on what, if any, reforms might be made to Inheritance Tax or Capital Gains Tax under a Labour government.
However, the Guardian reports potential alterations to Inheritance Tax could focus on:
This provides relief from Inheritance Tax on certain business assets, such as land or buildings used for business purposes or unlisted shares. At the moment, this can provide either 50% or 100% relief on relevant assets, which can be passed on while the owner is still alive or as part of the will. Changes to Inheritance Tax could scrap or amend the scope of this relief.
This reduces Inheritance Tax by up to 100% on qualifying agricultural property, such as farmland and farm buildings. Changes to Inheritance Tax may look at removing this relief or altering the level of relief available.
While Labour has ruled out applying Capital Gains Tax on the sale of people's primary homes, this still leaves room for increases on the sale of second homes or shares in businesses. Changes to Capital Gains Tax could therefore impact:
- Entrepreneurs’ Relief
This applies a reduced Capital Gains Tax rate when selling qualifying business assets. An increase in CGT could affect the use of this relief.
If any alterations are to be made for either tax, costings will first need to be gathered on the various measures and findings presented to the Office for Budget Responsibility (OBR) before final decisions are taken. This means there are still several possible outcomes at this stage, ranging from no immediate changes to capping the agricultural and business reliefs, to a complete removal of these.
Keeping up with changes on the horizon
We will have to wait until the new government is in place to see whether reforms to Inheritance Tax and Capital Gains Tax are indeed on the table.
Whoever ends up in power, there are likely to be changes on the horizon, as tax policies can - and generally do! - evolve beyond the commitments made in manifestos.
Our Wealth Management team will be keeping a close eye on any potential adjustments to the current system, with advice to help you make the most of your available options so you can stay on the front foot.
In the meantime, contact us to discuss your general Inheritance Tax or Capital Gains Tax position and how you can best plan for the future, even when times are more uncertain.
Our inheritance tax and estate planning experts in the Wealth Management team help you plan for the future, with straightforward legal advice to protect yourself and your family.
