Labour tax pledges: An examination of their manifesto

It looks like there will be no big shake-up to income tax rates, as Labour included a headline pledge not to raise the basic, higher or additional rates of income tax.

The manifesto made no mention of what comes next for the personal allowance or income tax thresholds, which are currently frozen until April 2028. Elsewhere on the campaign trail Labour indicated they intend to keep the thresholds frozen until 2028. It should be noted that in recent years we've seen a divergence for Scottish taxpayers in rates and bands on non-saving, non-dividend income, which are set by the Scottish Parliament.

Along with income tax rates, Labour included a manifesto pledge not to increase national insurance (NI).

It's expected that Labour will continue with the current policy to replace the UK’s non-dom regime with one that's residency-based. Though we expect some further changes in how the policy is designed as Labour pledged they would be “closing further non-dom loopholes”, including preventing the use of offshore trusts to mitigate UK inheritance tax. While Labour’s manifesto was light on detail beyond this, the Labour Party has previously indicated other areas of the currently proposed rules that it may reform.

Read more: 

• Abolition of non-dom status: What might the changes mean for you?
• A new dawn for non-domiciled individuals?

The absence of any policy pledge in the Labour manifesto on CGT fuelled speculation about its future. On the campaign trail senior Labour figures sought to reassure that it has “no plans” to increase CGT (beyond the previously announced policy on the tax treatment of carried interest). However, unlike income tax rates, national insurance, VAT and corporation tax, Labour didn’t rule out a future rise in its manifesto.

Read more: Election manifestos: What's happening with capital gains tax?

Labour’s manifesto reconfirmed its previously announced intention to address the differential in the tax rate applied to carried interest, which is taxed at CGT rates rather than the (often higher) income tax rates. Labour has regularly referred to the policy as “closing the carried interest tax loophole”, though the specifics of how the reform would be implemented are uncertain, most notably whether Labour would increase the rate of CGT charged on carried interest or if it would be taxed as income.

The Labour manifesto only included a brief reference to IHT, concerning ending the use of offshore trusts to avoid IHT as part of Labour’s wider plans for non-dom reform (see above).

The Labour manifesto committed to retaining the triple lock for the state pension.

The previous Government abolished the Lifetime Allowance in the Spring Budget 2023. Rachel Reeves, who was Shadow Chancellor at the time, noted that Labour will reverse the changes to tax-free pension allowances, saying it was "the wrong priority, at the wrong time, for the wrong people”. However, during the election campaign, it was reported that Labour was reconsidering this position, and it wasn't a policy that made it into its manifesto.

The Labour manifesto has a targeted pledge to increase stamp duty on purchases of residential property by non-UK residents by 1%.

It should be noted that stamp taxes are devolved in Wales and Scotland and different rates and thresholds can apply.

There were no surprises in the Labour manifesto on corporation tax. The new Government confirmed they won't raise it (albeit referring to the 25% headline rate only for the duration of the current Parliament). They also confirmed they will act if tax changes in other countries pose a risk to UK competitiveness. 

While there was little in the way of surprises on business tax more broadly, this was in part because Labour had already set out a mini business-tax manifesto of sorts earlier in the year, indicating the future UK business tax landscape if they were to form the next Government. The main themes were providing businesses with certainty and stability to encourage investment in the UK and wider economic growth. This was reflected in Labour’s manifesto which focused on “wealth creation” as a top priority. Announcements in addition to their pledge on the headline corporation tax rate included maintaining full expensing for capital expenditure, the Annual Investment Allowance for small businesses, and publishing a business tax roadmap.

At the time the election was called the Government was consulting on extending full expensing to assets held for leasing when affordable to do so. Labour gave no indication in their manifesto whether they intend to continue to look at this policy, so we should expect to learn more about their position on this in the coming months.

It’s also worth noting that the Labour manifesto pledged to reduce the burden on business rates for brick-and-mortar businesses. Labour’s manifesto didn’t go into detail on how this would be achieved in practice beyond levelling “the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship”. They are, however, clear this would be a revenue-neutral measure and thus a policy area that will be of interest to both brick-and-mortar and online businesses.

Labour also pledged to raise a further £1.2 billion through an extension of the current windfall tax on oil and gas companies.

Labour committed in their manifesto to implementing a Carbon Border Adjustment Mechanism (CBAM) on imports into the UK of certain carbon-intensive goods. The CBAM is based on the emissions intensity of goods, less the carbon price already paid. As such the imports from countries with a lower or no carbon price will be most affected (the previous Government consultation on the policy design closed before the election).

The Labour manifesto pledged there will be no increase in the rate of VAT. Labour has retained one of its core policies to end the VAT (and business rates) exemption for private schools. Identified as one of their three main tax policies to fund their first steps in Government, this change is expected to be announced at their first fiscal event.

Read more: Changing private schools' VAT status: What would it actually mean?

Clamping down on tax avoidance and closing the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC and actual receipts) was identified in the Labour manifesto as a way to raise additional funds. They identified a net circa. £5 billion of further revenue to be raised by 2028/29 from closing the tax gap. Out of total new tax revenue-raising measures costed in their manifesto of £8.5bn, a significant proportion of additional revenue is therefore expected to come from closing the tax gap.

Read more: Closing the tax gap