With the 2019 general election approaching, the debate over the country’s future is intensifying. Tax is, as always, proving to be a key battleground among the different parties. At the time of writing, we have seen manifestos for the Conservative Party, Labour Party, Liberal Democrat Party, Green Party of England and Wales, Plaid Cymru and a ‘contract with the people’ from the Brexit Party. This article draws out the key points from manifestos and various other announcements that underpin the parties’ plans for taxing individuals and businesses.

Brexit and our future relationship with the EU is clearly a crucial theme for this election, and proposals for the NHS have also been an area of focus. Despite this, tax policies always gain a lot of interest as a result of the wide impact they have. With many of the parties seeking to increase the level of spending, tax – a large part of the other side of the equation – becomes even more important. There are not too many who would choose to pay more tax, and someone is always made worse off when there are increases to tax, so finding the perfect balance is virtually impossible.

The proposals put forward so far include major overhauls of long-established tax systems. A number of parties have focused on simplifying certain areas of tax, such as by combining sources of income and applying single tax rates or allowances, and reforming various tax reliefs. There are also themes around limiting the burden of business rates and introducing measures to ensure that landowners, rather than tenants, are subject to tax on the value of land. As with previous general elections, tackling tax avoidance and evasion remains a key pledge for the main parties.

Even as we get closer to the election, it is very difficult to predict which tax policies will come into force. So, what should taxpayers be thinking about now? It is not unusual for any new government to implement significant tax policy changes at the start of its term in office, well away from a subsequent election. While any actions taken should be driven by commercial and other non-tax factors, deferring or accelerating decisions so as to take action in advance of potential changes to the tax legislation may be worth considering. We have set out certain areas that you might want to consider now.

This guide is based on information available up to 25 November 2019. We have split the summaries between businesses tax, private clients and general measures, and we have imported words from the relevant manifestos.

12 December is fast approaching and, although we can’t be sure who will end up in Number 10, history shows that tax is likely to be high on the agenda of the new government.

 

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Business tax measures

 

Conservatives

Key policies include maintaining the corporation tax rate at 19%, increasing the tax credit rate for R&D to 13% and cutting business tax rates for small retail businesses and certain entertainment venues. Proposals to reform entrepreneurs’ relief are also significant.

Key tax policies:

• Maintain the corporation tax rate at 19%.
• Review and reform entrepreneur’s relief.
• Increase the employment allowance for small businesses.
• Guarantee no increase to VAT.
• Increase the tax credit rate for R&D from 12% to 13% and review the definition of R&D.

National:

• Implement the digital services tax.
• Increase structures and buildings allowance by 1% and encourage investment in physical building and equipment.
• Maintain support for creative sector tax reliefs.
• Abolish VAT on sanitary products (following an exit from the EU).
• Reduce NICs for employers if they employ ex-service personnel.

Regional:

• Conduct a fundamental review of the business rates system with the aim of reducing business rates. Cutting business tax rates for small retail businesses and for local music venues, pubs and small cinemas, was specifically noted. Extending business rates relief for local and regional newspapers was also noted.
• Devolve responsibility for corporation tax to Northern Ireland and consider also devolving short-haul passenger duty to Northern Ireland.
• Local people to continue to have the final say on council tax, meaning they would be able to veto excessive rates.
• Create up to ten freeports around the UK.

Other measures:

• Review alcohol duty to ensure the tax system is supporting British drink producers.
• Consider how the apprenticeship levy can be improved.

Environmental measures:

• Introduce a new levy, from 2022/23, to increase the proportion of recyclable plastics in packaging.

Labour

Key proposals include increasing the corporation tax rate to 26% over three years and re-introducing a small profits rate of 21%. There is also a focus on simplifying the corporate tax relief system and reviewing tax reliefs. Proposals to abolish entrepreneurs’ relief are also significant.

Key tax policies:

• Increase corporation tax rates, initially 21% rising to 26% by April 2022.
• Reintroduce a small profits rate for firms with a turnover under £300,000 a year of 19%, rising to 21% by April 2021.
• Review the option of a land value tax on commercial landlords as an alternative to business rates.
• Treat corporate groups, under common ownership, as unitary enterprises to ensure that profits are declared, and taxes paid, where economic activity occurs and where valued is created.
• Scrap entrepreneurs’ relief and consult on a better form of support for entrepreneurs.
• Carry out a review of corporate tax reliefs for their effectiveness against their stated aims compared with alternative measures to achieve those aims. Seek to ensure stronger transparency and accountability concerning the creation and maintenance of corporate tax reliefs.
• Establish a small graduated levy on companies paying out high incomes: 2.5% for income paid above £300,000; 5% for income paid above £500,000; and 7.5% for income paid above £1m.

National:

• Phase out the patent box relief and R&D tax credits for large corporations, while keeping the R&D tax relief SME scheme and increasing direct support for R&D.
• Ensure no quarterly reporting for small businesses below the VAT threshold.
• Guarantee no increases in VAT.
• Review permitting single director incorporations.
• Extend the time limit for HMRC to assess corporation tax in cases involving offshore income and gains to 12 years.

International:

• Introduce an additional charge at 20% on purchases by offshore companies and trusts of UK residential property, supplementary to existing stamp duties.
• Remove the trading exemption for indirect disposals by non-residents and replace it with an exemption targeted at small investors with a £1m limit. Establish a £1m limit on the exemption that means CGT is only paid by an investor who owns more than 25% of the company, to prevent it being used as a mechanism for tax avoidance.
• Consider whether there is a case for de-recognising the Channel Islands Stock Exchange to close the Eurobond loophole.
• Conduct a comprehensive review of existing advance thin capitalisation agreements (ATCAs), and adopt a general presumption against making them.
• Continue to cooperate internationally to introduce full country by country reporting across jurisdictions.
• Promote fairer international tax rules and commit to becoming the third country to help fund the expanding work of the UN Tax Committee.

Regional:

• Support the steel industry in Britain by exempting new capital from business rates and investing in R&D.
• Give local councils new powers to tax properties empty for over a year.

Other measures:

• Introduce a new ‘use it or lose it’ tax for developers on stalled housing developments.
• Reverse cuts to the bank levy.
• Ensure country-by-country reporting is fully implemented domestically.
• Extend stamp duty reserve tax to forex spot and derivatives trades, interest rate derivatives, and commodities spot and derivatives trades at 50% of transactions costs. A discount of one-third will apply to financial firms. An exemption will apply to interest rate derivatives under three months’ maturity (to avoid cash-like transactions), and for the first £1,000 of foreign exchange transactions daily per market participant.
• Require certain large companies to set up an inclusive ownership fund (IOF). Up to 10% of a company will be owned collectively by employees, with dividend payments distributed equally among all, capped at £500 a year, and the rest being used to top up the climate apprenticeship fund. The cap will rise to ensure that no more than 25% of dividends raised by IOFs are redistributed in this way.

Environmental measures:

• Introduce a windfall tax on oil companies.

Liberal Democrats

Key tax proposals include restoring the corporation tax rate to 20%, simplifying business tax and various measures to promote innovation and support new business. Replacing business rates in England with a Commercial Landowner Levy based on the land value of commercial sites is also a significant proposal.

Key tax policies:

• Restore the corporation tax rate to 20% and keep the rate stable.
• Simplify business taxation to reduce administration costs and opportunities for tax avoidance.

National:

• Refund colleges for the VAT they pay.
• Support the growth of the tech sector by allowing companies to claim R&D tax credits against the cost of purchasing datasets and cloud computing.
• Continue to support growth in the creative industries with tailored industry specific tax support.
• Review the tax and national insurance status of employees, dependent contractors and freelancers to ensure fair and comparable treatment.
• Improve the digital sales tax.
• Remove VAT on sanitary products.

International:

• Reform the place of establishment rules to stop multinationals shifting profits out of the UK.

Regional:

• Replace business rates in England with a commercial landowner levy based on the land value of commercial sites rather than their entire capital value, to shift the tax burden from tenants to landowners.
• Allow local authorities to increase council tax by up to 500% where homes are being bought as second homes, with a stamp duty surcharge on overseas residents purchasing such properties.
• Review the UK excise duty structure better to support whisky exports in Scotland.
• Devolve air passenger duty.

Other measures:

• Develop a dedicated, progressive health and care tax, offset by other tax reductions.
• Introduce a new levy on tobacco companies.
• Introduce a compulsory levy on gambling companies.
• Close loopholes in the soft drinks industry levy and extend it to include juice and milk-based drinks that are high in added sugar.

Environmental measures:

• Reform the taxation of international flights to focus on those that fly the most, while reducing costs for those who take one or two international return flights per year.
• Graduate stamp duty land tax in accordance with the energy rating of the property and reduce VAT on home insulation.
• Accelerate the transition to ultra-low emission transport through taxation, subsidy and regulation.
• Reform vehicle taxation and cut VAT on electric vehicles to 5%.
• Amend the current HGV road user levy to take account of carbon emissions.

Brexit Party

Key tax proposals include introducing a tax-free threshold for companies and providing tax incentives to encourage apprenticeships. An online sales tax is mentioned in the contract, but no detail is provided. The contract also promises to reduce VAT on fuel, which would be made possible by the party’s principal promise to withdraw from the EU.

Key tax policies:

• Reduce corporation tax to 0% on the first £10,000 of pre-tax profits.
• Introduce an online sales tax, which would fund the replacement of business rates with a simpler system aimed at supporting small high street retailers and leisure operators outside the M25.
• Zero-rate VAT on domestic fuel.
• Reduce import tariffs on certain foods, footwear and clothing.

Other measures:

• Reduce import tariffs to nil on certain foods, footwear and clothing items.
• Abolish the apprenticeship levy and improve tax incentives for employers to hire apprentices.

Green Party of England and Wales

Key tax proposals include the introduction of a carbon tax, the abolition of council tax and business rates in exchange for an annual land value tax, an increase in the rate of corporation tax to 24% and widening the definition of ‘profits’ for corporation tax purposes.

Key tax policies:

• Increase the rate of corporation tax to 24%.
• Widen the definition of ‘profits’ for corporation tax purposes to include dividends, share buyback, additions to cash holdings, payments to parent or subsidiary companies and other distributed income.

National:

• Introduce a tax on meat and dairy products over the next ten years. The funds from this part of the carbon tax are to be used to help farmers transition to sustainable farming methods.
• End the double taxation of pensions funds, which are currently subject to corporation tax and then income tax when paid to pensioners.
• Increase employment allowance from £3,000 to £10,000.

International:

• Advocate public country by country reporting and consolidated corporate tax across the EU to prevent profit shifting.

Regional:

• Abolish council tax and business rates and replace them with a land value tax, which charges the landowner a proportion of the capital value of the land each year (estimated to be around 1.4% of current values).

Other measures:

• Remove charitable status from private schools and charge full VAT on school fees.
• Increase the bank asset tax.
• Reduce VAT on: food and drink served in pubs, bars and restaurants; on hotel bookings; on theatre, music concert, museum and gallery tickets; and for the household repairs sector.
• Apply taxes to legalised drugs.
• Remove VAT from UK hotel and holiday homes stays and attractions.

Environmental measures

• Apply a carbon tax on all fossil fuel imports, the domestic extraction of fossil fuels and the import of other energy, based on its embedded emissions. The rate of this tax will rise progressively over a decade. Non-fossil-fuel greenhouse gas emissions from industrial installations will also be subject to the carbon tax.
• End the VAT exemption for domestic flights and introduce an additional surcharge on domestic aviation fuel.
• Expand tax on plastic bags to cover plastic bottles, single-use plastics and microplastics.
• Introduce a frequent flyer levy on those who take more than one return flight a year.

Plaid Cymru

Key proposals include the devolution of corporation tax, air passenger duty and VAT to Wales, maintaining the corporation tax rate at 19% and cutting tourism VAT on hospitality in Wales to 9%.

Key tax policies:

• Advocate for the reversal of the British government’s previously planned cut on corporation tax and maintain the rate at 19%.
• Cut tourism VAT on hospitality to 9%.

National:

• Devolution of corporation tax to Wales, as is the case in Northern Ireland.
• Devolution of air passenger duty to Wales, as is the case in Scotland and Northern Ireland.
• VAT revenues assigned to Wales, as is the case in Scotland.

Regional:

• Establish employment action zones in rural and industrial areas with high unemployment where a special exemption for employer national insurance and enhanced tax credits for R&D will be offered.

Other measures:

• Explore how the tax system can be used to promote public health, for example through introducing a minimum price per unit of alcohol, and through imposing additional taxation on other potentially harmful products.

Environmental measures:

• Use of planning laws, levies and tax-making powers to ensure a zero waste Wales and to ban single use plastics.
• Designate town centres across Wales as opportunity zones with tax relief and capital investment to turn them into engines of localised green development.

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Private client tax measures

Conservatives

Key proposals include no increases to income tax, the introduction of a stamp duty surcharge for non-resident buyers and the increase of the national insurance threshold to £9,500 in April 2020. Proposals to reform entrepreneurs’ relief are also significant.

Key tax policies:

• Guarantee no increase to income tax.
• Guarantee no increase to national insurance.
• Raise the national insurance threshold to £9,500 in April 2020, with the ultimate ambition being to raise the threshold to £12,500.
• Introduce a stamp duty surcharge on non-UK resident buyers.
• Review and reform entrepreneurs’ relief.

Other measures:

• Conduct a comprehensive review of a loophole which means a number of workers earning between £10,000 and £12,500 on net pay pension schemes miss out on pension benefits.

Labour

Key proposals include lowering the 45% additional tax rate threshold to £80,000, introducing a ‘super-rich’ rate of 50% for income over £125,000 and removing the tax-free allowances for dividends and capital gains. They also include taxing dividends and capital gains at the same rates as all other income. Proposals to abolish entrepreneurs’ relief are also significant.

Key tax policies:

• Freeze national insurance and income tax rates for those earning less than £80,000.
• Lower the 45% income tax threshold from £150,000 to £80,0000.
• Create a new ‘Super-rich’ tax rate of 50%, applicable to income over £125,000.
• Tax capital gains with income at the same tax rate (capital gains will continue to fall outside the scope of national insurance).
• Remove the annual capital gains exempt allowance (above a de minimis threshold of £1,000).
• Abolish the dividend allowance (subject to a de minimis threshold).
• Abolish the rates of tax applicable to dividends, and tax dividends alongside all other income and capital gains.
• Scrap non-dom status altogether in the first Budget, consulting on whether there is a need for an exception for foreign residents in the UK for a short period of time.
• Scrap entrepreneurs’ relief and consult on a better form of support for entrepreneurs.
• Reverse cuts to inheritance tax by abolishing the residence nil rate band.

Other measures:

• Introduce an additional charge at 20% on purchases by offshore companies and trusts of UK residential property, supplementary to existing stamp duties.
• Introduce a new annual levy on second homes that are used as holiday homes, equivalent to 200% of the current council tax bill for the property.
• Introduce a ‘rate of return’ allowance (set at contemporary 10-year bond rates) so that gains below this rate will be earned tax free.
• Retain capital gains tax exemption for primary residences.
• Scrap marriage allowance.
• Impose VAT on private school fees.
• Remove the trading exemption for indirect disposals by non-residents and replace it with an exemption targeted at small investors with a £1m limit. Establish a £1m limit on the exemption that means CGT is only paid if an investor owns more than 25% of the company, to prevent it being used as a mechanism for tax avoidance.
• Introduce reforms requiring individuals engaging in ‘profit fragmentation’ schemes to pay back the tax owed immediately as an enquiry into their scheme opens.
• Extend the sugar tax to milk drinks.

Liberal Democrats

Key proposals include increasing income tax rates by 1% and ending retrospective tax changes, such as the loan charge.

Key tax policies:

• Abolish capital gains tax-free allowance and instead tax capital gains and salaries through a single tax-free allowance.
• Increase income tax rates by 1p for basic, higher and additional rate tax bands (excluding Scotland), and ringfence the funds for investment in mental health.
• End retrospective tax changes, such as the loan charge, and review recent proposals to change IR35 rules.

Other measures:

• Scrap the marriage tax allowance.

Brexit party

Key tax policies:

• Abolish inheritance tax.

Green party of England and Wales

Key tax proposals include the creation of a consolidated income tax, which replaces a range of other taxes and the introduction of an annual land value tax, which charges landowners a proportion of the capital value of the land each year.

Key tax policies:

• Create a single consolidated income tax so that all income is treated the same way for tax purposes. The consolidated income tax is to apply instead of employees’ national insurance, capital gains tax, inheritance tax, dividend tax and income tax.
• Abolish the rule that allows non-domiciled residents not to pay tax on foreign income.
• Introduce an annual land value tax to replace all land taxes including SDLT, inheritance tax on land, capital gains tax on land sales, annual tax on enveloped dwellings and income tax on land for owner-occupiers. The land value tax charges the landowner a proportion of the capital value of the land each year (estimated to be around 1.4% of current values). It includes proposals to protect homeowning pensioners, and those who have low incomes but who are ‘land rich’, with a right to defer the tax until the property is sold or transferred. There will be legislation to prevent landowners from passing these tax costs back to renters and tenants. These changes are to be phased in over ten years, with reliefs on offer.

Other measures:

• Reduction of tax-free drawdown on pensions to £40,000.
• Reduce tax relief on pension contributions to basic rate.
• Replace the nil rate income tax threshold and most income-related benefits with Universal Basic Income; an unconditional financial payment to everyone at a level above their subsistence needs.

Plaid Cymru

The key proposals are an increase in the employee rate of national insurance for higher and additional rate taxpayers and restricting the amount of income tax relief for pension contributions to 20%.

Key tax policies:

• Increase the employee rate of NICs for higher rate and additional rate taxpayers from 2% to 4%.
• Introduce a new tax credit of up to £25 a week for people in Wales who pay more than 30% of their income on rent and utilities.

Other measures:

• Advocate for income tax relief on pension contributions to be restricted to the standard rate of 20%.

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General tax measures

Conservatives

General avoidance and evasion measures:

• Tackle tax evasion and reduce opportunities for aggressive tax avoidance by setting out a new anti-tax avoidance and evasion law which will:
• Double the maximum prison term to 14 years for individuals convicted of the most egregious examples of tax fraud.
• Create a single, beefed-up Anti-Tax Evasion unit in HMRC that covers all duties and taxes, from individual errors to deliberate noncompliance.
• Consolidate existing anti-evasion and avoidance measures and powers.
• Introduce a new package of anti-evasion measures, including measures to end tax abuse in the construction sector, crack down on illicit tobacco packaging and further measures to avoid profit-shifting by multinational companies to avoid paying taxes.

Labour

General avoidance and evasion measures:

• Provide stronger support for HMRC, transforming its power and resources, in order to clamp down on enablers of tax avoidance and evasion, as well as avoiders and evaders themselves.
• Draw up a list of tax havens and introduce sanctions against tax havens. Consult on the introduction of a withholding tax levied against any dividend, interest and royalties to individuals or companies in abusive tax havens. Consider the relationship between a withholding tax and double taxation treaties.
• Replace the general anti-abuse rule with a more robust and wide-reaching general anti-avoidance rule, based on the New Zealand model, to crack down on tax avoidance measures that escape specific anti-avoidance rules and help to catch exploitative use of trust and company structures in order to minimise tax. Remove the need for an advisory panel to approve prosecution.
• Strengthen the law on failing to prevent the facilitation of tax evasion, introduce harsher penalties for promoters of tax avoidance and evasion, consult on extending the Suspicious Activity Regime to tax avoidance and refer to the Law Commission whether lawyers’ use of legal professional privilege is facilitating tax avoidance and evasion, and whether the law should be changed to restrict this.
• Launch a nine-month public inquiry to investigate common tools of avoidance and evasion, and recommend policy measures to eliminate these tools. In particular, the use of offshore trusts, and whether there is the case for taxing further distributions from trusts or imposing a withholding tax on certain distributions from trusts, payable by trustees. The inquiry will investigate the tax treatment of equity and debt, to inquire into whether steps should be taken to ensure debt and equity are treated equally for taxation purposes.
• Ensure HMRC has resources to tackle umbrella agency schemes where they are used to avoid or evade tax.
• Advocate for tax avoidance to be seen as an illicit financial flow in international institutions such as the UN, OECD, G7 and G20.

Other measures:

• Conduct a review of the UK’s network of double tax treaties, paying attention to the role of these treaties in facilitating tax avoidance in the UK and by UK companies in the Global South.
• Create a public register of trusts to include all trusts that operate through the UK, and review penalties for non-compliance.
• Publish the tax returns of all individuals earning over £1m.
• Fully restore HMRC’s preferred creditor status.
• Ensure any company that has failed to pay its fair share of tax is excluded from tendering for public contracts.

Liberal Democrats

General avoidance and evasion measures:

• Introduce a general anti-avoidance rule and set a target for HMRC to reduce the tax gap.
• Support and build on the OECD’s proposals to require multinationals to pay a level of tax that is more closely related to their sales in every country in which they operate.

Other measures:

• Invest in more HMRC staff.

Green party of England and Wales

General avoidance and evasion measures:

• Advocate for the EU to prioritise the co-ordination of crackdowns on tax avoidance and evasion and campaign for the EU to clamp down on member state tax havens, including Ireland, the Netherlands and Luxembourg.
• Entrench the anti-avoidance principle in UK tax law and oblige banks to provide information about companies automatically to HMRC.
• Clamp down on tax havens internationally and, domestically, require offshore companies to reveal their beneficial ownership before being accepted as competitors for publicly funded contracts. In instances where beneficial ownership is not clear and/or payments are made to secretive tax havens, all money and assets transferred will be treated as an income distribution and taxed at the full corporate or income tax level.
• Close a loophole relating to stamp duty on shares by bringing the purchase of all shares and new share issues within the scope of the duty.

Other measures:

• Establish HMRC as an independent agency of government, answerable to Parliament.
• End the sale of personal data, including tax records, for commercial or other ends.

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Possible actions to consider

Although we can’t be certain who will end up in Number 10 on 13 December, we can be sure that the new government will introduce changes to tax policy. It is not unusual for any new government to implement significant tax policy changes at the start of its term in office. Changes are more likely to be introduced from a Budget date or the start of a particular tax year, but there are some actions that taxpayers could consider taking now.

While actions should be driven by commercial and other non-tax factors, deferring or accelerating decisions so as to take action in advance of potential changes to the tax legislation may be worth considering. The points below might be worth thinking about.

• Consider advancing income where possible so that it arises prior to the election or the new government’s Budget. Several parties are proposing measures that would increase the tax payable on various forms of income. This may only be worth considering in respect of income that would otherwise have been taxable for this tax year, due to the disadvantage of paying tax up to a year early. For example:
• accelerating dividend payments from family companies or private companies;
• accelerating interest payments on loans to family companies or unlisted companies;
• accelerating dividend payments from family unit trusts or open-ended investment companies;
• accelerating business income to access a different rate of corporation tax. This will depend on both your ability to choose when to take income and your view of the election outcome. A Conservative led government plans to maintain the existing corporation tax rate of 19% while several of the other parties wish to increase the rate of corporation tax to up to 26%.

• Consider crystallising capital gains early, for example, by making disposals before the election or the new government’s Budget. This may help to ensure a lower rate of capital gains tax or the availability of current reliefs and exemptions, in particular entrepreneurs’ relief, which has been highlighted as in need of reform in both the Conservative and Labour manifestos. Any disposal may be best left until the very last minute as it may be possible, in some circumstances, to take advantage of the bed and breakfast rules to reverse the tax position if need be in 30 days.
• For trusts, consider earlier income or capital distributions.
• Consider making gifts to make use of currently available inheritance tax reliefs. This needs to be balanced against the risk of needing to wait seven years before any potentially exempt transfers would not be subject to inheritance tax when alternative arrangements, such as purchasing shares that qualify for business relief, could be more beneficial.
• Anti-avoidance will continue to be focused on, regardless of the outcome, and taxpayers with complex affairs may wish to review these.

The above is not meant to be exhaustive and will vary depending on each taxpayer’s particular circumstances. Clearly, it is impossible to forecast which tax policies will be in place in the next few months, so any action taken now involves risk. Tax changes introduced by the new government may be backdated to April 2019, may come in part way through the tax year or indeed at a later date. Action before the election or Budget could therefore still be caught by a subsequent change.

The author thanks her national tax colleagues for their contributions to this report.