‘Inevitable’ tax changes under Labour as expert details what we know and don’t know

HMRC letter surrounded with cash
-Credit: (Image: GETTY)


Labour is expected to utilise the momentum from its majority victory on Thursday to enact the changes it promised in its manifesto. Many of these will centre around key tax and pension issues that have been plaguing the British public for years, with one tax expert explaining just what Britons can expect and what the new government has failed to address in the lead-up to its win.

Gary Smith, partner in financial planning at wealth management firm Evelyn Partners, noted the “great executive power” awarded to the new government by its large majority win but admitted it’s still highly unlikely that the government will be launching any surprising or controversial policies not mentioned in its manifesto too early in its parliamentary run.

He highlighted that the public is unlikely to find out the small print of Labour’s planned tax and pension changes until the Autumn Budget in September and pointed out how key figures in the party “have been keen to stress there are no tax-raising plans being nurtured in back rooms”. But, given governments’ tendency to surpass their spending estimates, Gary noted it’s “inevitable that people are wondering how a Labour government might look to raise money without the biggest tax levers at its disposal”.

Gary has divided up what was and wasn’t clarified in the lead-up to the election.

VAT levied on private schools

One of the more notorious announcements was the plan to raise £1.6billion from VAT and business rates being applied to private schools, although the new Chancellor of the Exchequer, Rachel Reeves, insisted this won’t be implemented until 2025. Gary warned: “Most private schools, facing pressure from rising wage and pension costs, will not be able to absorb the imposition of VAT at 20 per cent, so fees payable by parents will soar. That in turn will take a private education ever further out of the equation for many middle-class families, even where earnings are high.”

Tax avoidance crackdown

Labour plans to seal a number of tax loopholes including closing non-dom tax status and “beefing up HMRC resources” to reduce tax avoidance which the expert noted will likely be accompanied by a “review into how tax reliefs are being used”. He pointed out: “One person’s ‘loophole’ is another’s ‘legitimate tax relief’ and when a Government is in need of money, it’s tempting to start portraying the latter as the former.”

The pensions Lifetime Allowance

Labour’s previous intentions to restore the pensions Lifetime Allowance was not mentioned in the manifesto, which Gary noted could be to the benefit of savers and financial planners alike as he slammed the allowance, which was abolished in April, as “an unwelcome distortion and best consigned to history”.

State Pension triple lock

While Labour promised to retain the triple-lock, it failed to match the ambitious triple-lock-plus plan offered by the Conservatives’ manifesto, which may mean the full rate of State Pension could overtake the personal allowance - the amount of income a person can earn each tax year tax-free. This has the potential to see pensioners taxed on their State Pension, with experts predicting this collision to happen around 2027 - or sooner.

When it comes to potential tax and pension changes that are currently unclear, Gary noted the manifesto promised “a renewed focus on tax avoidance by large businesses and the wealthy will begin to close the tax gap and ensure everyone pays their fair share”. However, he also claimed it’s “highly unlikely” any tax system changes will be enacted before next April.

According to the expert, areas of concern that haven’t been addressed by Labour, whether predicted to stay the same or change, include Capital Gains Tax, Inheritance Tax, Pension tax relief and workplace pensions.