Labour laid out its election promises on Thursday, in what leader Jeremy Corbyn described as a “manifesto of hope”.
Speaking at Birmingham City University, Mr Corbyn told supporters that Labour was poised to unleash the largest-scale investment programme in modern times, including more cash for the NHS, social care, and the biggest council house-building programme since the 1960s.
To help pay for its proposals, Labour would increase taxes by £83 billion a year, with the vast majority falling on big business and the wealthy, according to its manifesto.
Here, we outline five personal tax proposals.
1. Income Tax
Labour's manifesto proposes lowering the point at which individuals pay 45% Income Tax to £80,000 (from £150,000), and introducing a new ‘super-rich’ rate for those with salaries of £125,000 and above. This new top rate is not detailed, but it is presumably the 50% proposed in 2017. Tax rates for everyone with income below £80,000 would be frozen.
According to the Institute for Fiscal Studies, the plans would increase the tax bills of 1.6 million individuals and would likely raise up to £3 billion a year.
During his leadership campaign, Boris Johnson promised to reduce Income Tax by raising the 40% threshold for higher-rate tax payers from £50,000 to £80,000. This now looks unlikely to feature in the Conservative manifesto after Mr Johnson vowed to focus on cuts to national insurance payments.
2. Inheritance Tax
Inheritance Tax (IHT) is currently charged on estates worth more than the £325,000 nil rate band. The residence nil rate band, introduced by George Osborne, provides individuals with an exemption of a further £150,000 on the transfer of a family home on death.
Labour says it will reverse Mr Osborne’s cuts, raising an estimated £5 billion. This would leave more families faced with the prospect of having to pay 40% tax.
Sajid Javid told the Conservative conference in September of his wish to scrap IHT, at a cost of £5 billion, saying, “It’s something that’s on my mind.” Nothing has been confirmed so far, although one would expect the second set of proposals made by the Office of Tax Simplification to be seriously considered if a Conservative government is retained.
3. Capital Gains Tax
Labour says it will "end the unfairness" that sees income from wealth taxed at lower rates than income from employment, by taxing capital gains at Income Tax rates. This will raise an estimated £9 billion.
Nothing specific on Capital Gains Tax has been confirmed by the Conservatives.
4. Dividend Tax
Labour has also pledged to equalise the tax treatment of income from dividends with normal taxable income. Although not explicitly stated, the implication is that the dividend allowance would be scrapped.
Currently, basic rate tax payers pay 7.5% on dividends above the £2,000 tax-free allowance. For higher rate taxpayers that rises to 32.5%, and 38.1% for additional rate payers.
5. Second Homes Tax
Labour says it will apply an annual levy on second homes equivalent to 200% of the current council tax bill for the property. It estimates this could raise up to £560 million a year.
What next?
The Conservative manifesto is due to be published on Sunday. The Tories also have ambitious spending plans, but it seems reasonably clear that a Labour government, or a Labour-led coalition, will lead to higher taxes than a Conservative one.
The odds on the Labour Party gaining a majority are small, but regardless of which party is in power after 12 December, the reliefs and exemptions currently available are unlikely to get materially better than they are currently.
Therefore, investors are advised to seek financial advice ahead of the election to discuss the appropriateness of taking action to improve their tax health.
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