The Labour general election manifesto was launched yesterday. A number of significant tax proposals were outlined and these are set out below (note, many of the policies are lacking in further detail at this stage):
- Corporation tax:
- Raise the main rate of corporation tax to 21% from April 2020, 24% from April 2021 and 26% from April 2022;
- reintroduce a small profits rate for firms with a turnover under £300,000 a year; keep the small profits rate at 19% from April 2020, rising to 20% from April 2021 and 21% from April 2021;
- introduce “unitary taxation of multinational corporations”: Labour will treat “corporate groups under common ownership as unitary enterprises, so that profits are declared where economic activity occurs and where value is created”.
- Income tax
- Introduce a new ‘super’ income tax rate of 50% on earnings of £125,000 and over;
- lower the threshold for the additional income tax rate of 45% from £150,000 to £80,000;
- basic and higher rate tax and NICs will not rise.
- Taxing income from wealth – capital gains:
- Capital gains will be taxed at marginal rates of income tax;
- the lower income tax rate for dividend income will be abolished; dividends will be taxed at marginal income tax rates;
- abolish the separate annual exempt allowance for capital gains and dividends (although there will be a de minimis threshold of £1,000);
- Entrepreneurs Relief will be abolished and there will be a consultation on an alternative;
- primary residences will continue to be exempt from capital gains.
- Financial transaction tax:
- SDRT to be extended to forex spot and derivatives trades, interest rate derivatives, and commodities spot and derivatives trades at 50% of transaction costs;
- a discount of one-third will apply to financial firms, because financial firms have lower transactions costs;
- an exemption will apply to interest rate derivatives under three months’ maturity (to avoid cashlike transactions), and for the first £1,000 of foreign exchange transactions daily per market participant; it is noted that the tax will not be based on where the trade is transacted, but on who is carrying out the transaction.
- Inclusive ownership fund:
- Large companies to set up Inclusive Ownership Funds. Up to 10% of a company will be owned collectively by employees, with dividend payments distributed equally among all, capped at £500 a year, and the rest being used to top up the Climate Apprenticeship Fund. The cap will rise to ensure that no more than 25% of dividends raised by IOFs are redistributed in this way.
- Windfall tax on oil companies
- Windfall tax on oil companies to be introduced. The tax will be used to pay for a “just transition fund” providing an £11bn support package to help retrain 37,000 workers in the industry to “make the transition to a clean economy”.
- Review of corporate tax reliefs to be undertaken, with a target of reducing them by £4.3bn. The review will examine the reliefs for their effectiveness against their stated aims and compared with alternative policy measures to achieve these aims. It will also seek to ensure stronger transparency and accountability concerning the creation and maintenance of corporate tax reliefs. It will not include major structural reliefs such as the personal allowance.
- Avoidance and evasion: Labour will “enact the most comprehensive tax transparency and avoidance programme ever enacted in government. This will be a powerful package of legal reforms, resourcing changes, and government-wide reviews and inquiries – all with the aim of changing the culture that surrounds taxation, so that tax is viewed as a contribution and tax avoidance is not tolerated”. This will include measures to improve transparency, clamping down on enablers of tax avoidance and evasion as well as avoiders and evaders themselves, eliminating legal loopholes and focusing on cross-border action on avoidance and evasion.
- Bank levy: previous cuts to be reversed.
- Sugar tax: to be extended to milk drinks.
- IHT: previous cuts to be reversed. IHT could be replaced by a lifetime giving tax, effective at the income tax rate for assets worth over £125,000.
- Funding for R&D: R&D tax credits for large corporations and the Patent Box will be phased out over the Parliamentary term. The R&D tax relief SME scheme will be retained.
- Overseas companies buying housing: a new levy will be introduced.
- Private school fees: to be subject to VAT.
- Second homes tax: an annual levy on second homes that are used as holiday homes will be introduced, equivalent to 200% of the current council tax bill for the property.
- Property developers: a new ‘use it or lose it’ tax will be introduced on stalled housing developments.
- Business rates: the option of a land value tax on commercial landlords will be reviewed, as an alternative to business rates.
- No increases in VAT.
A link to the manifesto, costings document and Review of Corporate Tax Relief document is here.
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