Corbyn has some radical plans (perhaps unsurprisingly) and the Tories look to National Insurance cuts ahead of the impending election.
Labour laid out its election promises recently, in what leader Jeremy Corbyn described as a “manifesto of hope”. Speaking at Birmingham City University, he told supporters that Labour planned to unleash the largest-scale investment programme in modern times, including more cash for the NHS, social care, and the biggest council house-building programme since the 1960s.
To help pay for its proposals, Labour would increase taxes by £83 billion a year, with the vast majority falling on big business and the wealthy, according to its manifesto.
Here, we outline five personal tax proposals.
1. Income Tax
Labour's manifesto proposes lowering the point at which individuals pay 45% Income Tax to £80,000 (from £150,000), and introducing a new ‘super-rich’ rate for those with salaries of £125,000 and above. This new top rate is not detailed, but it is presumably the 50% proposed in 2017. Tax rates for everyone with income below £80,000 would be frozen.
According to the Institute for Fiscal Studies, the plans would increase the tax bills of 1.6 million individuals and would likely raise up to £3 billion a year. During his leadership campaign, Boris Johnson promised to reduce Income Tax by raising the 40% threshold for higher-rate tax payers from £50,000 to £80,000. This now looks unlikely to feature in the Conservative manifesto after Mr Johnson vowed to focus on cuts to national insurance payments.
2. Inheritance Tax
Inheritance Tax (IHT) is currently charged on estates worth more than the £325,000. The residence nil rate band, introduced by George Osborne, provides individuals with an exemption of a further £150,000 on the transfer of a family home on death.
Labour says it will reverse Mr Osborne’s cuts, raising an estimated £5 billion. This would leave more families faced with the prospect of having to pay 40% tax.
The Conservatives are currently mooting scrapping IHT, at a cost of £5 billion. Now that would be big news.
3. Capital Gains Tax
Labour says it will "end the unfairness" that sees income from wealth taxed at lower rates than income from employment, by taxing capital gains at Income Tax rates. This will raise an estimated £9 billion.
Nothing specific on Capital Gains Tax has been confirmed by the Conservatives.
4. Dividend Tax
Labour has pledged to equalise the tax treatment of income from dividends with normal taxable income. Although not explicitly stated, the implication is that the dividend allowance would be scrapped.
Currently, basic rate tax payers pay 7.5% on dividends above the £2,000 tax-free allowance. For higher rate taxpayers that rises to 32.5%, and 38.1% for additional rate payers.
5. Second Homes Tax
Labour says it will apply an annual levy on second homes equivalent to 200% of the current council tax bill for the property. It estimates this could raise up to £560 million a year.
What next?
All this goes to show is the value of a continual programme of financial advice. No matter who wins the election, change is likely to be coming.
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