Tax pledges: A party manifesto comparison

It looks like there will be no big shake-up to income tax rates, with both Labour and the Conservatives including headline pledges that they won't raise the rate of income tax. While the Liberal Democrat manifesto is silent on income tax rates, their long-standing policy to increase income tax by 1p was dropped during their party conference last year.

With the exception of pensioners (see below), both the Labour and Conservative manifestos make no mention of what comes next for the personal allowance, which is currently frozen until April 2028, whereas the Liberal Democrats have pledged to raise the tax-free personal allowance when public finances allow. Labour and the Conservatives have indicated they intend to keep the thresholds frozen until 2028, though the current Chancellor, Jeremy Hunt, (speaking on the BBC Today programme in late May) confirmed that the Conservatives wouldn't continue the freeze beyond then. It should be noted that in recent years we've seen a divergence for Scottish taxpayers in rates and bands on non-saving, non-dividend income, which are set by the Scottish Parliament. At the time of writing the SNP hasn't yet released their manifesto.

Along with income tax, both Labour and the Conservatives have included manifesto pledges not to increase the rate of national insurance (NI). The Conservatives have gone further and reconfirmed their previously stated long-term ambition to keep cutting NI until it's gone. They have said the timing of this is dependent on affordability, and there's no clarity regarding any differential impacts on employee vs employer NI. Their manifesto pledges to reduce employee NI by a further 2p by April 2027 to 6% and to abolish Class 4 NI for the self-employed by the end of the Parliament. Combined with the recent abolition of Class 2 NI from April this year, the impact of this pledge would be that there's no longer any self-employed NI. In addition, it’s been confirmed that this wouldn't affect a self-employed person’s entitlement to the State Pension.

IR35, the off-payroll working reform for the public (2017) and private (2021) sectors, and recent high-profile challenges by HMRC have meant that the policy has never been far from the headlines. Both the Liberal Democrats and Reform UK include it in their manifestos. The Liberal Democrats have pledged to review the Government’s off-payroll working IR35 reforms “to ensure self-employed people are treated fairly”. Reform UK has gone further and pledged to “abolish IR35 rules to support sole traders”, it's unclear though whether that would be to remove the original IR35 legislation (introduced in 2000) in its entirety or the off-payroll working reforms of 2017/2021.

While there's no mention of any further reform in either the Conservative or Labour manifestos, the debate is likely to continue, given the focus from other parties on the differentials in the UK tax system between how the employed and the self-employed are taxed.

It's expected that the UK’s non-dom regime will be replaced with one that's residency-based, whichever party wins. The final design of the new regime won’t be clear until after the election, with Labour pledging they'll be “closing further non-dom loopholes”, including preventing the use of offshore trusts to mitigate UK inheritance tax. While Labour’s manifesto is light on detail beyond this, it has previously indicated other areas of the currently proposed rules which it may reform – our private tax specialists explore what changes could mean for different people here.

Read more: 

• Abolition of non-dom status: What might the changes mean for you?
• A new dawn for non-domiciled individuals?

With both the Conservative and Liberal Democrat manifestos including pledges (detailed below) on CGT, the absence of any policy pledge from Labour on its future has continued to fuel speculation. Elsewhere on the campaign trail senior Labour figures have sought to reassure that it has “no plans” to increase CGT (beyond the previously announced policy on the tax treatment of carried interest), though unlike income tax, national insurance, VAT and corporation tax, Labour hasn't ruled out a future rise in its manifesto.

In comparison, the Conservative manifesto includes a commitment not to increase CGT, alongside retaining Business Asset Disposal Relief, Private Residence Relief, and introducing a new two-year temporary CGT relief for landlords who sell to their existing tenants. The Liberal Democrats have proposed revenue-raising reform to CGT, introducing three rates of CGT from 20% (for gains up to £50,000), 40% (between £50,000 and £100,000) and 45% (over £100,000). Unlike now, where the CGT rate is determined by adding together income and capital gains, under the proposed reform the rate would be based solely on gains. Taxable gains would be (partially) offset by an increase in the current capital gains tax-free allowance from £3,000 to £5,000 and a newly introduced 'inflation allowance'. There would also be targeted relief for small businesses.

Read more: Election manifestos: What's happening with capital gains tax?

Labour’s manifesto reconfirms its previously announced intention to address the differential in the tax rate applied to carried interest, which is taxed at CGT rates rather than the (often higher) income tax rates. Labour has regularly referred to the policy as “closing the carried interest tax loophole”, though the specifics of how the reform would be implemented are uncertain, most notably whether Labour would increase the rate of CGT charged on carried interest or if it would be taxed as income. 

Since Autumn Statement 2023, speculation has been rife that the Conservatives will cut or abolish inheritance tax (IHT) and this was fueled further by Hunt recently remarking that IHT was “profoundly anti-Conservative”. However, apart from a brief pledge to retain Agricultural Property and Business Property Reliefs, there was no wider mention of what a future IHT landscape would look like under a Conservative Government in their manifesto. The Labour manifesto also only includes a brief reference to IHT, with regards to ending the use of offshore trusts to avoid IHT as part of Labour’s wider plans for non-dom reform (see above).

The Conservatives have pledged a 'triple lock plus' which, alongside continuing to uprate the state pension in line with the highest of inflation, earnings or 2.5%, they'll also increase the personal allowance for pensioners by the same measure, meaning that the state pension will on its own be below the tax-free threshold. The Labour manifesto has also committed to retaining the triple lock for the state pension.

Following the Conservative Government’s abolishment of the Lifetime Allowance in the Spring Budget 2023, Rachel Reeves, the Shadow Chancellor,  noted that Labour will reverse the changes to tax-free pension allowances, saying it was "the wrong priority, at the wrong time, for the wrong people”. However, it’s been reported that Labour have been reconsidering this position and it wasn't a policy which made it into its manifesto.

The Conservatives have also pledged a wider Pensions Tax Guarantee that they won't introduce any new taxes on pensions, maintaining the 25% tax-free lump sum, and tax relief on pension contributions at their marginal rate. They have also committed not to extend NI to employer pension contributions.

The Labour manifesto has a targeted pledge to increase stamp duty on purchases of residential property by non-UK residents by 1%.

The Conservatives have included a wider suite of stamp tax pledges in their manifesto, including making permanent the increase to the threshold at which first-time buyers pay stamp duty to £425,000 from £300,000, this temporary increase is currently due to end on 31 March 2025. They have also pledged to not increase the rate or level of stamp duty. Positioned as a policy to support homeowners, it's envisaged this refers to stamp duty land tax.

It should be noted that stamp taxes are devolved in Wales and Scotland and different rates and thresholds can apply.

There were no surprises in the Labour or Conservative manifestos on corporation tax, with both parties confirming they won't raise it (albeit Labour refers to the 25% headline rate only for the duration of the next Parliament). The Liberal Democrat manifesto doesn't reference the UK rate of corporation tax, but they do pledge to make the case for increasing the global minimum rate of corporation tax to 21%. It’s assumed this refers to the current global minimum tax (set at 15%) under the Pillar Two rules and so would be subject to international dialogue, there's no indication at present they would look to make this move unilaterally.

While there was little in the way of surprises on business tax more broadly, this was in part because Labour had already set out a mini business-tax manifesto of sorts earlier in the year, indicating the future UK business tax landscape if they were to form the next Government. The main themes were providing businesses with certainty and stability to encourage investment in the UK and wider economic growth. This was reflected in Labour’s manifesto which focused on “wealth creation” as a top priority. Announcements in addition to their pledge on the headline corporation tax rate included maintaining full expensing for capital expenditure, the Annual Investment Allowance for small businesses, and publishing a business tax roadmap.

A tax system that incentivises business investment was also framed as being core to the Conservative’s economic plan in their manifesto. Providing businesses with certainty was a key pillar for making full expensing permanent in last year’s Autumn Statement. The Conservative manifesto reiterated their plans to look to extend full expensing to assets held for leasing when affordable to do so. There's no indication in the Labour manifesto whether it intends to continue to look at this policy if elected.

It’s also worth noting that both the Conservative and Labour manifestos pledge to reduce the burden on business rates for bricks and mortar businesses. The Conservative manifesto pledges to do so by increasing the multiplier on distribution warehouses that support online shopping over time. Labour’s manifesto has less detail on how this would be achieved beyond levelling “the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship”. They are, however, clear this would be a revenue-neutral measure and thus a policy area that will be of interest to both bricks and mortar and online businesses if Labour were to form the next Government.  

Other business tax policies to note are:

• Labour’s pledge to raise a further £1.2 billion through an extension of the current windfall tax on oil and gas companies
• the Conservatives reconfirmed commitment to Investment Zones, along with a pledge to create more Freeports and Business Rates Retention zones

The Conservatives, Labour and Liberal Democrats have all committed in their manifestos to implementing a Carbon Border Adjustment Mechanism (CBAM) on imports into the UK of certain carbon-intensive goods. The CBAM is based on the emissions intensity of goods, less the carbon price already paid. As such the imports from countries with a lower or no carbon price will be most affected (the current Government consultation on the policy design closed last week).

Both the Conservative and Labour manifestos have pledged there will be no increase in the rate of VAT. Labour has retained one of its core policies to end the VAT (and business rates) exemption for private schools. Identified as one of their three main tax policies to fund their first steps in Government, this change is expected to be announced at their first fiscal event.

Read more: Changing private schools' VAT status: What would it actually mean?

Clamping down on tax avoidance and closing the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC and actual receipts) is an area identified in a number of manifestos to raise additional funds. How much the parties think can be raised varies; the Conservatives have identified at least a further £6 billion a year, the Liberal Democrats proposing £7.2 billion and Labour a net £5 billion (this figure includes investment of £555 million in additional funding to HMRC each year to boost tax income).