After what seems like an eternity of bickering and backstabbing, an agreement was finally reached in the House of Commons on 29 October 2019.
Unfortunately, it was not a resolution to Brexit but rather for the UK to hold a general election on 12 December 2019.
The last few years have caused enough uncertainty and there is a danger this election could continue that trend.
Changes in government can play a huge part on the financial affairs of the country, as each party differs on its stance over tax, pensions, investments and property.
Two analysts from investment firm AJ Bell discussed the areas that will be affected if the Conservatives or The Labour Party win a majority in the election – and those are a couple of big ‘ifs’.
Income tax
Laura Suter, personal finance analyst at AJ Bell, said that prime minister Boris Johnson’s “biggest move” would be moving the point where the 40% income tax rate kicks in to £80,000 ($92,701, €103,221) from £50,000.
This move would affect around four million people and Suter said that the highest earners in that group would get an extra £2,500 a year.
She also said that Labour’s 2017 manifesto income tax changes were a step in the “other direction”.
Shadow chancellor John McDonnell “wants to bring more people into the 45% tax bracket”, reducing the threshold to £80,000 from £150,000.
“He would then introduce a 50% tax rate for those earning over £123,000, in a move that could raise billions for the public purse, but cost the highest earners the most,” said Suter.
Inheritance tax
Suter was keen to point out that the “most-hated tax in Britain” has not escaped either party’s notice.
Labour is pledging to scrap the current inheritance tax system and instead cap the amount everyone can receive in inheritance across their lifetime at £125,000.
Any gifts received above this would be taxed at income tax rates, in a revenue-raising move.
“New chancellor Sajid Javid has already said he is a fan of simplified taxes,” said Suter.
“The government has already commissioned the Office for Tax Simplification to carry out a review of IHT simplification, it seems a likely area of focus.”
Among the OTS’ suggestions are scrapping the seven-year taper, simplifying the annual gifting allowances into one, and scrapping certain other allowances.
Pensions
Senior analyst Tom Selby said each of the main parties is “vying for support both from the ‘grey’ vote and the 10 million or so savers introduced to pension saving through automatic enrolment”.
This means pensions are likely to take a “central role” in the forthcoming general election campaign.
“There has never been a larger section of the electorate with a vested interest in the pension policies of our prospective political leaders,” said Selby.
Triple-lock
One of the areas that could be affected is the ‘triple-lock’, which ensures UK state pension incomes go up at the rate of inflation, earnings or 2.5%, whichever is higher.
“If the state pension age is potentially political dynamite, then how the major parties approach the ‘triple-lock’ could well light the fuse,” said Selby.
Labour’s 2017 manifesto committed to retaining the triple-lock for the next parliament, while the Liberal Democrats suggested it should become a permanent feature of the state retirement system.
The Conservative’s 2017 manifesto said the UK should move to a state pension ‘double-lock’ linked to the highest of average earnings or inflation.
Selby added that retaining the triple-lock is “illogical” because it increases the real value of the benefit at random intervals.
“The triple-lock has become a totem for ‘doing right by older generations’, and it therefore seems likely all major parties will vow to protect it as voters go to the polls,” Selby said.
“If politicians believe the state pension is too low – as the triple-lock implies – they should instead detail a structured plan to move the benefit to the ‘right’ level.”
Pension tax relief
The overall cost of pension tax relief was over £38bn in 2017/18 (£20bn when the income tax paid on pension withdrawals is taken into account), with rising pension participation via auto-enrolment expected to push this figure higher.
Labour’s pledge to overhaul income tax will “increase the tax burden on the wealthiest in society” but “it will also boost pension tax incentives for this group of people at the same time”, said Selby.
“It seems extremely unlikely the intention of this policy is to hand more pension tax incentives to the rich, and so savers might need to prepare for reform in this area under a Labour administration.”
Property
The property market and stamp duty have also come into the focus of both parties.
Johnson has talked about cutting stamp duty on all homes worth £500,000 or less, in a bid to stimulate the property market.
First-time buyers already get a stamp duty break – as they pay nothing on the first £300,000 if they buy a property worth £500,000 or less.
Suter said that Johnson’s plan is “to extend this to all buyers and increase the tax-free limit to £500,000”.
“The move would save first-time buyers up to £5,000 and all other homeowners up to £15,000.
“Labour’s plans were more radical – a report backed by leader Jeremy Corbyn pledged to scrap stamp duty for homes people will live in themselves.”
The opposition’s plans also included council tax to be scrapped and replaced with a new “progressive property tax”, based on property values.
“This would also be payable by landlords rather than tenants, which would put money in the back pocket of anyone renting, and hiked for second homes, empty homes or those owned by non-doms,” Suter added.
“As part of this crackdown on landlords the capital gains tax rate for second homes or investment properties would increase too.”
Investments
Suter also said that investors are likely to “face a bevy of hits from a Labour government”, as the party has laid out plans to hand over some company shares to staff, introduce taxes on investing and nationalising certain companies.
“A new financial transaction tax would make the cost of buying shares and bonds more expensive, while plans to nationalise the Royal Mail, water and energy companies and RBS could mean existing investors in these businesses lose out if the shares aren’t purchased at market rate,” Suter added.
“A proposal for companies with more than 250 employees to hand staff 10% of the firm’s shares could be popular with employees but would cost investors.”
