After numerous failed votes, weeks of political posturing and frayed tempers in parliament and the country, Britain is finally heading for a general election. The manifestos haven’t all been published, but Times Money has scoured past announcements and proclamations to put together a guide to what we might reasonably expect.
The prime minister Boris Johnson has previously talked about raising the threshold at which you start paying higher-rate income tax in England from £50,000 to £80,000. At present, 40 per cent tax is levied on income between £50,000 and £150,000 (Scotland and Wales set their own tax bands).
This would affect about four million people, with the highest earners gaining an extra £2,500 a year.
Income tax isn’t the only tax earmarked for reform. The chancellor, Sajid Javid, suggested at the Conservative party conference that he was considering scrapping inheritance tax.
The Tories have also promised to look at the pension tax rules for higher earners, including the lifetime allowance (£1.055 million) and annual allowance (£40,000), after it emerged that NHS workers were cutting their hours to avoid tax. Another unpopular rule they could look at is the ‘taper’ applied to the annual pension allowance, which reduces the tax-free amount that can be saved into a pension for those earning more than £150,000.
The shadow chancellor John McDonnell has proposed lowering the threshold at which the 45 per cent additional income tax rate kicks in from £150,000 to £80,000, and would apply a 50 per cent rate to income of more than £123,000. Labour’s 2017 manifesto included an “excessive pay levy” under which companies would have to pay 2.5 per cent tax on any salary they paid over £330,000 and 5 per cent on any wages above £500,000. Labour has previously indicated that it may reduce pension tax relief.
The party has pledged to scrap the existing complicated inheritance tax system and simply impose a lifetime cap of £125,000 on the amount you can inherit tax-free. Any gifts received above this would be taxed as income. The party has also said it would end the marriage allowance that reduces a couple’s tax liability by £250 a year. McDonnell has also said he would reverse the Conservative cuts to capital gains tax (CGT) from 28 per cent to 20 per cent for higher-rate taxpayers and 18 per cent to 10 per cent for those on the basic rate of income tax.
Plans set out by the party last year include taxing capital gains as income and abolishing the £2,000 tax-free allowance available on dividend income. The Lib Dems also plan to introduce a flat 25 per cent rate of tax relief on pension contributions and abolish employee national insurance payments on those contributions. Last year the party called for the tax-free lump sum that can be withdrawn from pensions to be limited to £40,000 “restricting the amount of relief those with the largest pension pots can receive without paying any tax, while leaving 75 per cent of pension drawdowns unaffected”.
Everyone would have a lifetime tax-free inheritance allowance of £250,000 and beyond this wealth transfers, including gifts, would be taxed as income. Small annual gifts, spending on a child’s education and transfers to spouses and charities wouldn’t count towards the allowance, it stated in its report Giving Everyone a Stake.
Tom Selby, a senior analyst at AJ Bell says: “Perhaps the most politically toxic area of pension policy centres around plans to increase the state pension age. Under accelerated plans announced by the Conservatives in 2017, the state pension age will rise to 67 by 2028 and 68 by 2039, a full seven years earlier than had been proposed.”
The amount paid in the state pension rises each year in line with whichever of three factors are higher: average earnings, inflation or 2.5 per cent. This “triple lock” was introduced by the coalition government, but the Tory party has suggested moving to a “double lock” of average earnings or inflation from 2022.
According to its 2017 manifesto Labour would halt proposed increases to the state pension age beyond 66 and commission a review. In the last manifesto it committed to keeping the triple lock for the next parliament.
The Liberal Democrats and SNP have previously committed to the triple lock and the SNP has said it is opposed to an increase in the state pension age beyond 66.