With the Labour Party winning a landslide victory at the 2024 General Election on 4 July, we set out their proposed plans for personal taxes and what this might mean for you.

Income tax and National Insurance rates/thresholds

In its manifesto, the Labour Party pledged to keep the rates of Income Tax and National Insurance for “working people”   unchanged.  The phrase “working people” has not explicitly been defined by Labour, potentially leaving them scope to be flexible with their policies and still claim they have honoured this commitment.

Additionally, Labour have previously commented that they will keep the current tax bands frozen as they are until 6 April 2028. 

Freezing the tax bands while maintaining current rates will likely lead to further 'fiscal drag,' where inflation pushes taxpayers into higher brackets without actual increases in real income. Similar policies have been seen in countries like Germany, where tax band freezing has been used to address fiscal challenges without immediate rate increases.

Capital gain tax (CGT) and private equity gains

The Labour Party’s Manifesto is silent on Capital Gain Tax (CGT), other than mentioning the treatment of private equity carried interest. This is currently taxed at 28%, but proposals are underway to tax this at the same rates as income tax (i.e. up to 45%).  

It appears likely that Labour will revisit CGT at some point in the near future, as the current top rate of 20% is much lower than the top rate for income tax (higher rates apply to carried interest and residential property).

In contrast, previous administrations have generally kept CGT rates lower to encourage investment. Labour’s approach signals a shift towards treating capital gains more like regular income.

An increase in CGT rates, along with a reduction in the annual tax-free gains exemption to £3,000 (down from £12,300), could trigger a significantly higher tax burden for those realizing gains on their investments.

You may wish to consider whether any capital gains can be realised now, with a view to trying to lock in the current CGT rates prior to any rise. This will obviously be easier for liquid assets such as listed shares/funds and more difficult for illiquid assets such as properties or shares in private/unlisted companies. Care should be taken as special rules can apply to certain assets e.g. the bed and breakfasting rules for shares which prevents rebasing unless  there is a 31-day period or longer between a sale and repurchase.

Inheritance tax (IHT)

Labour’s manifesto was also silent on IHT and it is therefore difficult to know at this stage what changes the new government might make.  It will likely be an area of focus in the near future.

If Labour does increase IHT, it could affect estate planning strategies for many families. Conversely, maintaining current rates could continue to benefit high-net-worth individuals.

This uncertainty does make planning difficult, but where possible reviewing your estate planning strategies and taking certain actions in advance of any changes could be beneficial.

Non-domicile status 

Non-domicile status has been a key focus for the government this year; even before Labour took power. 

Back in the Spring Budget in March 2024, the Conservative Party proposed changes, creating a “residence- based regime” with effect from 6 April 2025. At the time, Labour had shown their support for many aspects of the proposals, but mentioned they would make amendments should they win the 2024 elections. Some of the changes they have suggested are as follows:

• To remove the 50% tax rate reduction for 2025/26 for those transiting from the remittance basis.

• To introduce tax free status for certain UK sourced investment income.

• To remove the availability of excluded property status from IHT for all new and existing trusts. 

• To consider whether the reduced tax rate of 12% applying to remittances can be extended to years after 2026/27.

We are still awaiting the technical details of the changes as currently no draft legislation or HMRC guidance is available . Given that Labour generally supported the initial proposals of the Conservatives, it is highly likely that the reforms will be implemented, with their exact form to be revealed in due course. 

HMRC’s powers

Finally, Labour have indicated they want to increase the power HMRC has to tackle tax avoidance, and target individuals who have not completed their registration or reporting requirements. Labour have not confirmed if there is a specific area of tax in which they seek to target, but we would urge you to speak to one of our experts if you are unsure if your tax affairs are complete and correct.

Increasing HMRC's powers could lead to more rigorous enforcement and audits, so it's crucial for taxpayers to ensure their compliance is up-to-date.

There is currently a lot of uncertainty in terms of the timing and final form of Labour’s changes. The Chancellor’s first budget in the Autumn is likely to address many of the above areas.