IHT receipts increase by £600m

Labour’s Manifesto: Closing tax loopholes and reforming public services

Sir Keir Starmer has unveiled the Labour manifesto, featuring the closure of the capital gains tax loophole for private equity investors, an increase in stamp duty for overseas buyers, and additional funding for HMRC.

Starmer emphasised that there would be no increases in income tax, national insurance, or VAT for households, framing it as “a manifesto for wealth creation” designed to rebuild Britain.

One of the cornerstone reforms is the closure of the capital gains tax loophole for private equity investors. Currently, private equity gains are taxed at 28%, but Labour plans to remove this loophole, potentially raising the effective tax rate to up to 45%. This change is expected to generate £565 million. Labour highlighted that private equity is the only sector where performance-related pay is treated as capital gains, and this will be addressed to ensure fairness.

Labour also aims to increase the stamp duty for non-UK residents buying residential property by 1%, projected to raise £40 million. Additionally, private schools will be subject to VAT and business rates, anticipated to raise £1.5 billion for funding 6,500 extra teachers and more teacher training.

The manifesto outlines plans to abolish non-dom status, replacing it with a modern scheme for short-term residents. This move is expected to raise £5.2 billion. Labour also intends to eliminate the use of offshore trusts to avoid inheritance tax, ensuring that all residents pay their fair share. Basil Dixon, Partner at Payne Hicks Beach commented:

“Whilst it was perhaps surprising that no mention of the non-dom changes was made in the Conservative manifesto, this clear statement of intent on non-doms and offshore trusts and inheritance tax in the Labour manifesto comes as no surprise at all. Whilst we do not know what the detail will look like, with a Labour win looking increasingly certain, non-doms now need to be assessing their affairs and considering their options. Whoever is in power, we would very much hope to see a considered and careful implementation of changes to the non-dom regime which would give taxpayers who have legitimately and reasonably relied on the rules a chance to unwind structures and incentivise them and their wealth to stay in the UK.

No one thinks the current rules are perfect, but if there is to be change they must be replaced by something better and above all the new system must encourage investment in the UK and not drive it away. Our concern is that this will not be achieved and a mass exodus of wealth from the UK over the next year or so looks like a real risk. Indeed, it has already started.”

To further close the tax gap, Labour has earmarked £855 million in funding for HMRC. Labour has committed to maintaining the current rates of income tax, national insurance, and VAT. There will be no increases in the basic, higher, or additional rates.

The manifesto includes a shift to a single fiscal event annually, replacing the current two events with a Budget and Autumn Statement. Labour will also develop a business tax roadmap and retain a permanent full expensing system for capital investment and the annual investment allowance for small businesses.

For first-time buyers, Labour plans to introduce a permanent mortgage guarantee scheme to help those struggling to save for a large deposit, aiming to lower mortgage costs.

In response to the fraud levels during the pandemic, Labour will appoint a fixed-term Covid Corruption Commissioner. This role will focus on recouping public money lost to pandemic-related fraud and ensuring accountability for contracts that failed to deliver.

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