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06 November 2019

Third time lucky – what another general election might mean for our finances

Boris Johnson has finally got his general election on 12th December, an early Christmas present for us all as we continue on the Brexit merry-go-round, and our third general election in five years. UK markets continue to lag their US, European and global peers over the last 12 months (to end of Q3 2019), as Brexit uncertainty continues to weigh. This has also fed through to business investment in the economy, with business investment growth in negative territory for Q2 2019. An end to the uncertainty would be welcomed by both markets and, one suspects, the economy. However, what does a general election mean for our personal finances?

Income tax:
During the Conservative leadership contest, Boris Johnson’s flagship policy was to raise the tax threshold for higher-rate tax payers from £50,000 to £80,000, and the Institute for Fiscal Studies (IFS) estimates that this would deliver a tax boost of c.£2,500 a year to approximately four million people.
Conversely, in Labour’s 2017 manifesto the party proposed that individuals earning between £80,000 and £123,000 would pay a tax rate of 45% on their income, while those earning over £123,000 would pay 50%.

Stamp Duty:
The Conservatives have proposed to shift stamp duty liability from the person buying the home to the person selling it. This is designed to increase the number of property transactions by lowering the upfront cost for prospective buyers. Secondly, scrapping the tax altogether on properties valued at or below £500,000 and reducing the rate payable on homes valued at £1.5m and over, from 12% to 7%.
Labour also has radical plans, with stamp duty to be scrapped for homes people will live in themselves, and also looking to scrap council tax and replacing it with a new ‘progressive property tax’, based on property values, payable by landlords rather than tenants. Rates for this tax would be set on a national level with empty homes and second homes paying most.

Inheritance Tax:
Currently, for individuals inheriting, the standard Inheritance Tax (IHT) rate is 40%, which is charged on the part of the estate above the £325,000 threshold.
Labour proposes to scrap IHT and replace it with a new ‘Lifetime Gifts Tax’. This would be levied on the recipients of the assets at the new marginal income tax rates.
The recently introduced ‘family home allowance’, which allows families to pass homes with an added IHT allowance, would also be abolished by Labour, and married couples would lose the ability to share allowances.
Separately, at the 2019 Conservative Party Conference, Chancellor Sajid Javid intimated that he may be prepared to either cut or indeed scrap IHT altogether.

Capital Gains Tax:
Labour pledge to raise the rates charged on the gains made when selling assets (e.g. a second home or other investments).
Labour would plan to abolish basic rates charged on smaller gains, currently 10% on liquid assets such as shares and 18% on property, and instead higher rates would automatically apply; these rates would be in line with the new income tax rates.

Pensions:
Labour’s 2017 manifesto committed to retaining the triple-lock for the next Parliament, while the Liberal Democrats have gone further, suggesting the triple-lock should become a permanent feature of the state retirement system.
Meanwhile, the Conservative’s 2017 manifesto suggested the UK should move to a state pension ‘double-lock’ linked to the highest of average earnings or inflation.
 
While the uncertainty continues for the short-term we look to have some light at the end of the tunnel, that is if one of the parties can take a majority back to the House. If not then all bets are off and the merry-go-round might well continue…
 
Third time lucky – what another general election might mean for our finances

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