What The Upcoming Election Could Mean For Tax

The political winds in the UK are shifting. With an expected election around the corner in 2024 and the Labour party taking a significant lead in the polls, many are wondering: How will this change our finances? SpearsWMS looked into potential tax implications and what the experts have to say.

When’s the Big Date?

While the UK parliament will dissolve by 19 December 2024, with the general election five years prior as the starting count, it’s expected that Brits will head to the polls well before then. Most political pundits anticipate an election in late spring, around May 2024, as politicians tend to avoid campaigning in the chilly holiday season.

Labour’s Potential Rise

Since December 2021, the Labour Party has enjoyed a comfortable lead in national polls. A boost in October 2022 solidified their dominance, with a substantial 20-point lead over the Conservatives. Expert polling analysis by Electoral Calculus places the likelihood of a Conservative majority at a minuscule 1%. All signs point towards a potential Labour-led government by the end of 2024.

The Big Wealth Tax Question

Back in December 2020, the Wealth Tax Commission, a group of legal, academic, and economic experts based at LSE, proposed a one-time wealth tax. The goal? To help the UK’s economy bounce back from the Covid-19 crisis.

Although the Labour leadership hasn’t officially backed this proposal, various party members and left-leaning commentators have shown keen interest. Despite Shadow chancellor Rachel Reeves stating that Labour has “no plans” to implement a wealth tax, there’s ongoing debate.

When asked, tax experts were divided on the matter. A small 24% felt a wealth tax was a good idea – a noticeable drop from 48% in 2021. Implementing such a tax, however, raises practical concerns. A significant 75% doubted its feasibility, mainly because accurately assessing an individual’s total wealth can be a tricky affair, especially if there’s an incentive to hide it.

Rethinking Non-Dom Status

After reports in 2022 highlighted how the Prime Minister’s wife, Akshata Murty, was benefiting from her non-dom status, questions arose about the fairness of the system. Labour has hinted at overhauling current non-dom rules in favour of a scheme that taxes based on residency and eliminates the system of only taxing money brought into the UK.

Expert opinion seems to favour a system revamp. A popular idea? Encourage non-doms to invest in the UK by offering tax incentives. However, some caution that if new rules are too stringent, wealthy individuals might just pack up and move to more tax-friendly countries.

Tax Changes on the Horizon?

While the election looms, experts don’t anticipate any drastic tax changes beforehand. If they were to play chancellor for a day, their suggestions lean conservative. Most feel VAT, stamp duty, and top-tier income tax should remain stable. There’s some push for higher energy taxes and aligning capital gains tax with income tax. As for inheritance tax, many see it as ineffective and propose a rework or removal.

Prepping for a New Dawn

With potential changes ahead, many high-net-worth individuals are strategizing. Some consider moving assets or even relocating internationally. However, experts also advise patience, expecting any major policy shifts to be gradual.

The Trouble with HMRC

Beyond tax rates, there’s growing concern about the HMRC’s operational efficiency. Experts report slower response times and less technical knowledge from HMRC representatives. A whopping 49% rate the HMRC’s performance in dealing with high-net-worth matters as “poor” or “very poor”. Most attribute these challenges to budget constraints and reduced staffing.