General election 2024 – what could a change of government mean for your money?

It’s early days with manifestos yet to be released, but there are some indications as to how things might alter for personal finances after the general election – by Rob Morgan

 
With a surprise general election called for the 4^th July investor attention is drawn to what might be in store for personal finances and taxes with the Labour party well ahead in the polls.

Labour and the Conservatives do not appear to be miles apart on economic policy with both parties committing to fiscal prudence, limiting the scope for dramatic changes to taxation and spending.

This may mean a relatively benign landscape unfolds, especially when set against other nations with elections this year. Not least of which, the reprise of a Trump-led White House poses some uncertainty should the Republicans triumph in the US election.

Yet there are some clear differences in priorities and in tone between the two major UK parties, which could set the stage for some important potential changes to track.
 

Income tax and National Insurance

 
Chancellor Jeremy Hunt had previously hinted at another National Insurance cut, possibly before the general election, with a possible longer-term ambition of phasing out NI altogether.

In last year’s Autumn Statement, he reduced it from 12% to 10%, and then slashed it again to 8% in the Spring Budget. There may be further pledges on this front from the Conservatives, while Labour would probably put an end to the ratcheting down of NI.
 

VAT on school fees

 
Labour has made a commitment to introduce VAT on school fees. This would come at a difficult time for many parents. Fees have risen with high inflation over the past few years and some families may face difficult choices with a further increase in costs.

If this could affect you, and you can manage it, it may be worth enquiring whether you can pay fees in an advance of the measure coming in – although this may not protect against a retrospective legislative move.

Meanwhile, with many grandparents happy to step in and contribute care must be taken around any inheritance tax consequences. There’s a standard £3,000 in IHT-free gift allowance each year for everyone, but anything over this is classed as a ‘potentially exempt transfer’. This means it is only fully free from inheritance tax if the donor survives for seven years after making the gift.

There are some exceptions to this, notably gifts made from surplus income, which must not impact the giver’s standard of living, and require good record keeping. It’s worth speaking with a professional if this is an issue for you and your family.
 

ISAs

 
Plans for a new British ISA were announced in the Spring Budget. The idea floated offers investors an extra £5,000 ISA allowance, on top of the current £20,000, that can be used to invest in UK companies.

The Labour party does not seem opposed to the idea of a British ISA and has made positive noises about the retail ownership of British businesses more widely, so should they emerge victorious they may well run with this idea.

We’ll soon learn more about the possible design of the British ISA – and which assets it might include – following the end of a Treasury consultation on the subject in June.

More broadly, Labour has signalled it might simplify the ISA landscape but hasn’t provided any details. That was also a sentiment apparently held by Chancellor Hunt but appears to stand at odds to the concept of an additional British ISA on top of the host of current ISA variants. A simplification would be welcome as the current array of ISAs and rules surrounding them causes confusion with lots of savers and investors.
 

Pensions

 
Longer term, retirement is such an important issue that there ought to be cross-party collaboration to set a stable architecture that people have confidence in – rather than it being a political football.

Labour has said it will review the current state of the pensions and retirement savings landscape but hasn’t yet provided any specific detail. A system for defined contribution pension schemes to invest a proportion of their assets into UK growth assets, including venture capital and infrastructure investment, has been surfaced as an idea, though. This does echo some of the current Chancellor’s initiatives to encourage greater investment in the UK from large pension schemes.

Elsewhere, it wouldn’t be a surprise to see a change to the pension lifetime allowance rules under a Labour government. The lifetime allowance, the total amount you could save across your personal and workplace pensions without incurring a tax charge, was scrapped by the current government, having previously been set at £1,073,100 for the 2022/23 tax year. If it makes a return, it could mean yet another unwelcome layer of complexity to the already mind-boggling set of rules, exceptions, and exceptions to exceptions. If you have significant pension provision and you are drawing close to the point of drawing benefits, then consider speaking to one of our financial advisers who can plot your course through the maze.

In respect of the State Pension there is agreement between the two parties. Despite longer-term concerns around its sustainability, both Labour and the Conservatives have committed to maintain the State Pension triple lock, which determines how much the state pension increases by each year. It’s based on the highest of average earnings growth, inflation, or 2.5%. With wage rises now well above inflation and 2.5%, and the relevant period for that component ending in July, pensioners will be due a healthy rise next April.
 

Inheritance tax

 
Frozen allowances and higher house prices are pushing more estates into paying inheritance tax (IHT) and receipts are at a record high. The Conservatives may look to IHT reductions as a manifesto ‘carrot’ to their core supporter base, something that Labour has preciously committed to undoing before it ever happened.

Other than that, the opposition party has been silent on the matter other than ruling out ‘wealth taxes’ more generally. However, we will have to wait and see if any further details appear in the party’s manifesto.
 

Property

 
In the Spring Budget the higher rate of capital gains tax on second properties was reduced from 28% to 24% with the Chancellor’s goal of freeing up more properties for sale. However, aside from this possibly short-term move the tax net has been closing on buy-to-let and holiday-let investors under the current government and that trajectory looks unlikely to alter whatever the result in July.

In particular, the abolition of the furnished holiday lets (FHL) regime, which offers tax advantages to those who let out a property as a holiday home, may make it worth considering whether an FHL should be sold before April 2025 to attract the potentially favourable business asset CGT rate of 10% before the rules change.

Changing legislation also poses a potential headache for landlords. Recently, Labour has been vocal on speeding up the process of getting rid of so-called ‘no fault’ evictions. If it picks up the baton and runs faster than the Conservatives on renter reforms we could see a more uncertain legal environment for landlords; for example in dealing with problem tenants.
 
Rob Morgan is Chief Investment Analyst at Charles Stanley