General Election manifestos released – what could a change of government mean for your money?

With manifestos released there are now more solid indications as to how things might alter for personal finances after the general election.

| 9 min read

With the Labour party well ahead in the polls ahead of the general election on the 4th July, investor attention is drawn to what might be in store for personal finances and taxes.

Labour and the Conservatives do not appear to be miles apart on economic policy, limiting the scope for dramatic changes. This may mean a relatively benign landscape unfolds for markets, especially when set against other nations with elections this year. Not least of which, the reprise of a Trump-led White House poses some uncertainty should the Republicans triumph in the US election.

Yet there are some clear differences in priorities and in tone between the various parties, which could set the stage for some important changes to personal finances.

What could a change of government mean for your money?

1. Income tax and National Insurance

Taxes are always on the agenda during election campaigning and this time is no different. Expectations were low for any movement around currently frozen income tax thresholds, and both Conservative and Labour have confirmed they plan to keep the standard allowances frozen until 2028.

More positively for taxpayers, neither party is planning to increase income tax rates, but with inflation and wages ratcheting up the band freeze effectively represents a gradual tax hike by stealth.

Current Chancellor Jeremy Hunt had previously hinted at another National Insurance cut with a possible longer-term ambition of phasing out NI altogether. In last year’s Autumn Statement, he reduced the levy from 12% to 10%, and then again to 8% in the Spring Budget. It was therefore no surprise to see promises outlined in the Conservative party manifesto with a further 2p cut by April 2027, dropping the rate to 6%.

Meanwhile, the Conservatives also said they would abolish the main rate of Class 4 self-employed National Insurance by the end of the Parliament. It comes after Class 2 NICs were retired in the Spring Budget. Labour would probably put an end to the ratcheting down of NI. However, shadow chancellor Rachel Reeves recently also ruled out increases to income tax or national insurance under a Labour government.

Read more: Are voluntary National Insurance contributions worth it?

2. VAT on school fees

Labour has confirmed it will introduce VAT on school fees should it form the next government. This will come at a difficult time for many parents. Fees have risen with high inflation over the past few years and some families may face difficult choices with a further increase in costs.

If this could affect you, and you can manage it, it may be worth enquiring whether you can pay fees in an advance of the measure coming in – although this may not protect against any retrospective legislative move.

Meanwhile, with many grandparents happy to step in and contribute care must be taken around any inheritance tax consequences. There’s a standard £3,000 in IHT-free gift allowance each year for everyone, but anything over this is classed as a 'potentially exempt transfer'. This means it is only fully free from inheritance tax if the donor survives for seven years after making the gift.

There are some exceptions to this, notably gifts made from surplus income, which must not impact the giver’s standard of living, and require good record keeping. It’s worth speaking with a professional if this is an issue for you and your family.

Read more: Private school fees: a way to reduce your inheritance tax?

3. ISAs

Plans for a new British ISA were announced in the Spring Budget. The idea floated offers investors an extra £5,000 ISA allowance, on top of the current £20,000, that can be used to invest in UK companies.

The Labour party has openly supported the idea of a British ISA and has made positive noises about the retail ownership of British businesses more widely, so should they emerge victorious they may well run with it.

We’ll soon learn more about the possible design of the British ISA – and which assets it might include – following the end of a Treasury consultation on the subject.

More broadly, Labour has signalled it might simplify the ISA landscape but hasn’t provided any details. That was also a sentiment apparently held by Chancellor Hunt but appears to stand at odds to the concept of an additional British ISA on top of the host of current ISA variants. A simplification would be welcome as the current array of ISAs and rules surrounding them causes confusion with lots of savers and investors.

The Conservative manifesto makes no mention of the British ISA, suggesting perhaps an intention to quietly drop the idea.

4. Pensions

Longer term, retirement is such an important issue that there ought to be cross-party collaboration to set a stable architecture that people have confidence in – rather than it being a political football.

Labour has previously said it will review the current state of the pensions and retirement savings landscape but hasn’t yet provided any specific detail. A system for defined contribution pension schemes to invest a proportion of their assets into UK growth assets, including venture capital and infrastructure investment, has been surfaced, though. This does echo some of the current Chancellor’s initiatives to encourage greater investment in the UK from large pension schemes.

Some have speculated that Labour might look to bring pension pots under the inheritance-tax regime in some way, or make changes to the rules governing pension tax relief or withdrawals. However, the party has now reportedly scrapped plans to reintroduce the pension lifetime allowance (LTA) should it win the general election, a welcome move for those with larger pensions negotiating the complexities of retirement.

Meanwhile, the Conservatives say they will not introduce any new taxes on pensions through a “Pensions Tax Guarantee”. It confirmed it will keep the 25% tax free lump sum and maintain tax relief on pension contributions at the marginal rate.

What about the State Pension triple lock?

In respect of the State Pension there is agreement between the parties. Despite longer-term concerns around its sustainability, Labour the Conservatives, and the Liberal Democrats have all committed to maintain the State Pension triple lock, which determines how much the state pension increases by each year.

The triple lock is based on the highest of average earnings growth, inflation, or 2.5%. With wage rises now well above inflation and 2.5%, and the relevant period for that component ending in July, pensioners will be due a healthy rise next April.

As things stand a full state pension would exceed the (currently frozen) income tax personal allowance by 2027. The Conservatives have announced the party would introduce a pensioners’ tax allowance so that those who receive no other taxable income would not fall into the tax net. Dubbed the ‘quadruple lock’ or ‘triple lock plus’, it’s a policy that is clearly aimed at older voters. Labour have yet respond to this specific issue.

5. Inheritance tax

Frozen allowances and higher house prices are pushing more estates into paying inheritance tax (IHT) and receipts are at a record high. The Conservatives provided no commitment to abolish inheritance tax, a move that had been expected in some quarters in their manifesto. The Labour document is also silent in the matter, and we may have to await a first fiscal statement from the party to see if any changes are afoot.

6. Property

A surprise inclusion in the Conservative manifesto is a plan to introduce a temporary capital gains tax relief for landlords who sell to their existing tenants. This goes much further than the Spring Budget when the higher rate of capital gains tax on second properties was reduced from 28% to 24% with the Chancellor’s goal of freeing up more properties for sale.

More broadly, changing legislation also poses a potential headache for landlords. Recently, Labour has been vocal on speeding up the process of getting rid of so-called ‘no fault’ evictions. If it picks up the baton and runs faster than the Conservatives on renter reforms we could see a more uncertain legal environment for landlords develop; for example in dealing with problem tenants.

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