What could a Labour government mean for your money?

With a wide margin of victory for the Labour party the new government have the political capital to make widespread changes.

| 9 min read

The Labour party were well ahead in the polls ahead of the general election, so it is no surprise to wake up this morning to news of their triumph.

Given the wide margin of victory the new government has a broad mandate for change. While their stance on many key economic and business issues is not dissimilar to the outgoing Conservatives there are some differences in priorities and in tone, which could set the stage for some important changes to taxes and personal finances.

Crucially, the new government may need to raise money to fulfil spending plans. To that end it may make changes to taxes, allowances, investment schemes and rules that could hit the unwary. It’s a time to be on high alert regarding your personal finances.

While it would not be conventional, or indeed practical, for changes to occur midway through the tax year, a fiscal statement from new Chancellor Rachel Reeves, in the Autumn we suspect, should unveil more detail on what will change, and what might change in the future pending various reviews.

In the meantime, here’s what we know so far.

What could a Labour government mean for your money?

1. Income tax and National Insurance

Expectations were low for any movement around currently frozen income tax thresholds, and Labour has confirmed they plan to keep the standard allowances frozen until 2028.

More positively for taxpayers, the party also has no plans to increase income tax rates, or national insurance. Yet with inflation and wages ratcheting up the band freeze effectively represents a gradual tax hike by stealth as a greater proportion of income falls into higher bands.

If you could be set to pay more tax it’s a good time to consider making the most of your tax-efficient ISA allowance.

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 run with it.

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

More broadly, Labour has signalled it might simplify the ISA landscape but hasn’t provided any details. That 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 array of ISAs and rules surrounding them causes confusion with lots of savers and investors.

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.

Some have speculated that Labour might 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.

It would not be a surprise to see some tinkering with the rules at some point. One facet likely to be looked at by a Labour government is the ability to pass pension pots on inheritance tax (IHT) free to nominated beneficiaries. There could also be changes to the maximum tax-free cash that can be taken, or even the extent of tax relief on contributions. It’s therefore worth considering whether topping up a pension could help you make the most of relief as things stand. The tax treatment of pensions depends on individual circumstances and is subject to change in future.

What about the State Pension triple lock?

Despite longer-term concerns around its sustainability, both Labour and the Conservatives have committed to maintain the State Pension triple lock, which determines how much the state pension increases by each year. It’s based on the highest of average earnings growth, inflation, or 2.5%. With wage rises now well above inflation and 2.5%, 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, and a pre-election Conservative announcement stated that the party would introduce a pensioners’ tax allowance, dubbed the ‘triple lock plus’, so that those who receive no other taxable income would not fall into the tax net.

Labour has not outlined any policies to address the issue of greater numbers of low-earning pensioners being caught by tax reporting and payment duties, but it’s sure to be an increasing issue given higher interest rates on cash alongside rises in the level of the state pension.

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 Labour manifesto was silent in the matter of IHT, and we may have to await a first fiscal statement from the party to see if any changes are afoot.

At first glance there appears to be little scope to ratchet up tax on capital gains with the CGT allowance halved to just £3,000 for the 2024/25 tax year. Indeed, Labour has already said it has “no plans” to change CGT rates, which depends on the income tax rate you pay and whether the asset is residential property, though that doesn’t entirely rule it out. Any moves to align CGT rates closer to those of income tax could catch out some investors.

There could also be more targeted and indirect ways to increase taxes on capital such as reforming the reset of capital gains on assets on transfer to a spouse on death or changing the scope of IHT and CGT business reliefs. Again, it’s a case of ‘watch this space’ but entrepreneurs and business owners looking to dispose of stakes or assets should be alert to any changes that might occur.

6. Property

Some first-time buyers could face paying more stamp duty from next April. Ahead of the election, Labour confirmed the first-time buyer stamp duty exemption threshold will fall back down to £300,000. The level was increased in September 2022 from £300,000 to £425,000 and was due to be reversed in April 2025, though the Conservatives pledged to maintain it at the higher level in their pre-election manifesto.

Meanwhile for landlords, changing legislation poses a potential headache. 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 reforms, we could see a more uncertain legal environment develop; for example, in dealing with problem tenants.

Wealth Under Pressure: Navigating family wealth challenges in changing times

Discover how the UK’s ‘squeezed middle’ is balancing finances with the expectations of different generations.

Read more

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Navigating family wealth challenges in changing times

Download your free guide and discover how the UK’s ‘squeezed middle’ is balancing finances with the expectations of different generations.

See more

More insights

Nato rearms as it hits 75
By Charles Stanley
11 Jul 2024 | 9 min read
Will planning changes achieve their aims?
By Charles Stanley
10 Jul 2024 | 8 min read
Markets react to elections
By Charles Stanley
08 Jul 2024 | 8 min read
What is waiting in the new government's in tray?
By Charles Stanley
05 Jul 2024 | 7 min read