The Labour Party secured a landslide victory in the U.K.’s general election early on Friday, as Sir Keir Starmer secured a robust mandate to govern the country.
The results mark a significant shift in the political landscape as they return to Government for the first time in 14 years.
Throughout the campaign, Labour’s platform focused on several key issues – we take a closer look at what their election victory could mean for your money.
How will Labour’s tax policies affect your finances?
In Labour’s manifesto, the party confirmed that they would not be raising the three main forms of taxes: Income Tax, National Insurance Contributions (NICs), and VAT.
There has also been no indication of changes to Capital Gains Tax. The rate of Capital Gains Tax which you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets. If you’re a higher rate tax payer, the current rates are 24% on residential property gains, and 20% on your gains from other chargeable assets. If you’re a basic rate tax payer, any gains which added to your income fall within your basic rate tax band and will be charged at 18% on residential property gains, and 10% on your gains from other chargeable assets, with any gains which exceed the higher rate tax band when added to your income being taxed at higher rate tax payer levels. It’s also important to remember that gains falling within the Capital Gains Tax allowance (£3,000 for the 2024/25 tax year) will be tax free.
Instead, they have pledged to make the tax system fairer by ending tax breaks for private schools – under existing arrangements, independent schools do not have to charge VAT on their fees.
The manifesto also confirmed that they will cap corporation tax at the current level of 25% – however, they will act “if tax changes in other countries pose a risk to UK competitiveness”. This featured alongside a promise to retain a permanent full-expensing system for capital investment.
There was little mention of changes in allowances, reliefs or exemptions – all of which have an impact on the tax take.
Labour also said it will maintain the freezing of the income tax thresholds (until 2028). The Institute for Fiscal Studies has warned this would bring 4.5 million more higher-rate taxpayers by 2027 than there were in 2020.
Other tax freezes and temporary cuts due to come to an end include the 5p cut in fuel duty and the stamp duty holiday, set to end next March.
There is also nothing at present to suggest anything will happen to tax-free cash.
Pensions and the triple lock – how will your savings be impacted?
The normal minimum pension age (NMPA) is the earliest age most people can start withdrawing money from their personal and workplace pensions. This is currently 55 years but is increasing to 57 on 6th April 2028. There is no current indication that this will be changed.
The State Pension currently already rises in line with whichever is highest: by average earnings, inflation, or 2.5%. Labour said that they would retain the triple lock for the State Pension, while adopting reforms to workplace pensions to deliver better outcomes for UK savers and pensioners.
The new Government want partnerships between employers and workers to ensure that workplace pensions provide a secure retirement income.
Mortgage guarantee scheme to be made permanent
Labour has announced it will introduce a “freedom to buy” pledge on guaranteeing mortgages. The scheme will help working people who struggle to save for a large deposit, while first-time buyers could use the state as a guarantor for their mortgages, making permanent a government scheme that was set to expire.
The lifetime allowance – will we see this return?
The lifetime allowance was the maximum amount you could save into a Pension without needing to pay additional tax, set at £1,073,100. Exceeding this limit meant paying a tax charge on any amount over it.
In his first Budget, in March 2023, Chancellor Jeremy Hunt announced the abolition of the pensions lifetime allowance, instead replacing with three new allowances from 6th April 2024: lump sum allowance, lump sum and death benefit allowance and overseas transfer allowance.
Right now, there has been no confirmed policy change, however if there is, we will communicate this.
How have asset markets reacted today?
The expectation was for a Labour win. Asset markets are forward looking, therefore a Labour win was “priced in”. This mean very little movement overall. GBP strengthened by around 0.2% against USD and UK equities were marginally up around 0.2%. There has been very little movement in UK gilt yields.
We’ll help you do more with your money
We’ll be sure to communicate any future policy changes that could affect your money, while you can also subscribe to our YouTube channel to view our regular Do More With Your Money podcasts.
If you’re a True Potential Wealth Management client and have any queries, you can speak to one of our financial advisors or call our Relationship Management Team on 0191 500 9164. They’re available 7am-8pm on weekdays and 8am-12pm on Saturdays.
If you do not currently invest with True Potential and would like to find out how we can help you do more with your money, contact us today – we are happy to speak through the available options. Please call one of our experts on 0191 625 0350 to get started.
Tax rules can change at any time. Tax treatment depends on an individual’s circumstances and may be subject to change in the future. Pension eligibility and tax rules apply.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
