Election 2015: talking taxes

Keep a close on eye on the major parties stance towards tax in their upcoming manifestos, as tax has never been a more heated political battleground as it is now, says Lucy Brennan

With a general election due next year, we can expect a lot of focus from all political parties on their future tax policies. These will naturally come through party manifestos but having recently had the party conferences for the Conservative, Labour and Liberal Democrat parties, we do have some indication of what is to come.

Both the Conservatives and the Liberal Democrats have already announced that they would like to see the income tax personal allowance increased to £12,500 by 2020. The Liberal Democrats also announced that they plan to start this by increasing the allowance to £11,000 from 6 April 2016. Meanwhile Labour has announced they would see the reintroduction of the 10 per cent starting rate of tax as well as the 50 per cent rate for those earning over £150,000 per annum.

In addition, the Liberal Democrats wish to align the national insurance contributions threshold with the income tax personal allowance, which they will do once they have reached their target on the personal allowance.

The changes proposed to the personal allowance will take a lot of people out of tax and will need to be paid for. The Liberal Democrats have announced that their plans will be paid for by wealth taxes, looking at capital gains tax, pensions and a tax on property. They intend to increase the top rate for capital gains tax from 28 per cent to 35 per cent, combined with a reduction in the annual exemption to £2,500. Under their plans, the pension lifetime allowance will be reduced from £1.25m to £1m, which was only introduced on 6 April 2014.

The final wealth tax is the tax on properties valued at over £2m. The initial proposal was for a 1 per cent levy on properties valued at over £2m, but now they are giving consideration to introducing new bands at the top end of council tax, with revaluations of properties for council tax purposes.

The Conservatives have said they will pay for the increase in the income tax personal allowance through spending cuts. They have also gone a step further in income tax cuts. In recent years each increase in the income tax personal allowance has been paid for by reducing the top limit for the basic rate of tax, bringing more individuals into the higher 40 per cent tax band and, it has been argued, dragging lots of people into a tax band which was not intended for them. The Conservatives have indicated that they plan to bring the threshold for the 40 per cent tax rate to £50,000, and so not only removing people from the liability to pay income tax, but also removing people from the 40 per cent tax rate.

The Conservatives have also indicated that they plan for a change in inheritance tax in the last budget of the coalition, increasing the nil-rate band to £1m. We will have to wait for the autumn statement to see if this will be followed through. One thing to note is that the £1m may be per couple, leaving individuals with a nil rate band of £500,000.

For Labour, the item that has been in the press most is the mansion tax that they propose to levy on properties valued over £2m. There have been concerns over the tax, but it has been announced that, given the larger value increases seen for properties over £2m, the threshold will be raised in line with value increases for 'mansions' costing £2,000,000 or more. In addition, it has been confirmed that those owning properties in the £2-3m band will pay £250 per month, and residents earning under £42,000 will be able to defer payment until they sell their home or pass away.

Tax will be a key tool for every political party in their solutions to reducing the deficit and in the current light of a call for fairness for all; it will also feature heavily in the moral battleground. The manifestos, when released, should have more detail of how the above changes already announced will be brought in and how the books are to be balanced. The manifestos and proposals of the others parties are also likely to be debated, such as UKIP's proposal to reduce taxes overall by introducing a 35 per cent rate between £44,000 and £50,000, and the 45 per cent rate scrapped as well as completely abolishing inheritance tax.

In the run-up to the election, we look set for one of the fiercest scraps over taxes in recent memory. The potential impact on clients is very real.

Lucy Brennan is a partner at Saffery Champness

She writes a regular blog on tax and estate planning for Private Client Adviser