With the general election just around the corner, the political landscape is heating up, and many are looking closely at what the manifestos of the major parties have to offer, especially when it comes to personal finances. The big question is: how will the proposed policies affect your wallet? While many of the details are still unclear, let’s take a closer look at the key financial proposals from the leading political parties and what they could mean for you.
What Are the Parties Saying About Pensions?
Pensions are a significant topic, especially for those nearing retirement, and unsurprisingly, the main parties have a lot to say. The Conservatives, in particular, have made pensions a focal point in their campaign, aiming to retain the support of their traditional voter base.
The Conservative Party’s pension proposals include:
- Introducing a new “Triple Lock Plus,” which guarantees that the State Pension and tax-free pension contributions will rise with the highest of inflation, earnings, or 2.5%.
- Introducing a pension tax guarantee, promising no new taxes on pensions.
- Keeping the 25% tax-free lump sum and maintaining tax relief on pension contributions at the individual’s marginal rate.
- Ensuring that National Insurance is not extended to pension contributions.
- Giving special consideration to the concerns of the WASPI women (Women Against State Pension Inequality).
The “Triple Lock Plus” is the headline proposal. It ensures that the State Pension will continue to increase, protecting pensioners from being dragged into income tax brackets. However, this could add more complexity to an already complicated system, especially if the government creates different personal allowances for various groups.
Other parties, such as Labour and the Liberal Democrats, also support maintaining the Triple Lock but are lighter on specific pension proposals. The Liberal Democrats have mentioned encouraging pension funds to align with climate goals, like the Paris Agreement, and increasing support for the WASPI women. Labour has refrained from proposing anything major in their manifesto but has ruled out reintroducing the lifetime allowance, a policy that many had expected to see.
Is There Anything Exciting on Capital Gains Tax?
When it comes to Capital Gains Tax (CGT), there isn’t much new ground being broken. Neither Labour nor the Conservatives have announced major changes, which likely means that the reduced CGT annual exemption—down from £12,300 to £3,000—will remain in place. However, both parties have made some more targeted pledges.
- The Conservatives have proposed a relief for landlords who sell their property to existing tenants as part of efforts to tackle the housing crisis.
- Labour has promised to close a tax loophole in the private equity industry, where performance-related pay is treated as a capital gain rather than income.
The Liberal Democrats have been the most vocal on CGT reform, promising to increase the annual exemption from £3,000 to £5,000 and introduce an “inflation allowance,” which would protect gains caused by inflation from being taxed. They also plan to tax gains above the allowance at three different rates, ranging from 20% to 45%.
What About Inheritance Tax?
In terms of inheritance tax (IHT), the Reform Party is the only one to make a notable proposal: they promise to abolish IHT for estates under £2 million and reduce the rate to 20% for those with estates above that threshold. This move aims to simplify the IHT process and make it fairer for families with significant assets.
Meanwhile, the other parties have not made any significant changes to IHT. The silence on this issue indicates that there are no major shifts expected in the way wealth is taxed after death.
Business Owners and Self-Employed Individuals
For business owners, particularly those looking to exit or sell, there are some potential implications of CGT policy. The Conservatives have proposed abolishing the main rate of National Insurance for self-employed individuals, which could be a relief for small business owners. Meanwhile, both Labour and the Liberal Democrats have suggested overhauling the business rate system to better balance the tax burden between local businesses and online companies.
On the issue of IR35, which has caused significant issues for the self-employed, the Liberal Democrats and Reform Party have expressed intent to either review or abolish it, while Labour has avoided addressing it altogether.
Headline Tax Policies: What Do the Parties Propose?
None of the major parties have proposed sweeping changes to income tax or VAT. Both the Conservatives and Labour have committed to not increasing income tax, VAT, or corporation tax. However, the Conservatives have promised a 2% reduction in National Insurance by 2027, though this is still a few years off.
The Liberal Democrats have proposed cautiously increasing the personal income tax allowance, but only when public finances allow it. Reform Party has made more ambitious tax pledges, including raising the personal allowance to £20,000 and increasing the higher rate tax threshold from £50,000 to £70,000, but the feasibility of these proposals is unclear.
So, What Does All This Mean for You?
In the end, it appears that the manifestos from all parties lack any truly revolutionary changes in personal finance. The policies regarding taxes, pensions, and CGT are relatively modest and cautious, with no party offering game-changing ideas. While there are some interesting proposals, such as the Liberal Democrats’ CGT reforms or the Reform Party’s plans for IHT, the overall picture seems to be one of incremental change rather than bold reform.
For those looking to make significant adjustments to their personal finances based on these proposals, the lack of concrete changes suggests a more cautious approach is warranted. Keep an eye on the finer details as the election draws nearer, but don’t expect any major financial upheavals just yet.
