By Things that might mean people pay more tax:
The spending cuts factored into the maths.
Any mention of the frozen tax thresholds – or plans to unfreeze them.
A promise from Labour not to raise capital gains tax.
A commitment from Labour on pension tax continuity.
Things that would help savers and investors but didn’t make the cut:
Lifetime pensions.
Improvements to the Lifetime ISA for the self-employed.
Tax simplification.
A conclusion to advice/guidance work.
The NatWest sale from Labour.
Plus, something that might signal a change of direction:
The British ISA.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“What’s left out of the manifestos can be as important as what makes the
cut. Like a teenager describing their weekend to their parents, you’re
only ever going to see the most positive edited highlights.
In this instance, there were vital details missing, raising concerns
that those pledges left off the page might be expensive enough to spark
more tax hikes. There were some missed opportunities too – where parties
could have fundamentally improved the nation’s financial resilience.
The spending cuts factored into the maths
The elephant in the room when the parties were putting their costings
together must have taken up so much space that there was barely room to
wield a calculator. Both studiously ignored the fact that they used the
baseline of current government spending, which includes massive cuts to
unprotected departments. It means that unless there is significant
economic growth, the second half of the coming parliament could result
in some very tough choices on spending or revisiting some tax pledges.
Any mention of the frozen tax thresholds – or plans to unfreeze them
Despite all the talk of tax, the hike that will make the biggest
difference to an awful lot of people is the one that didn’t get a
mention in the manifestos. Neither Labour or the Conservatives are
pledging to change the frozen income tax thresholds that have been busy
laying waste to our finances for years. It means whoever is elected, as
your pay rises, you’ll still pay more tax, and risk being pushed into a
higher tax bracket.
A promise from Labour not to raise capital gains tax
After falling into step with Conservative pledges not to raise income
tax, National Insurance or VAT during this parliament, Labour stopped
short on capital gains tax. It says it has no plans to raise it, but
won’t rule it out. It’s one reason why anyone who stands to make any
gains – including investors – need to consider their tax position.
Investing through a stocks and shares ISA is one of the best ways to
protect you from tax hikes from any future government.”
A commitment from Labour on pension tax continuity
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“We’ve seen many changes to pension tax allowances over the years and
this can cause chaos for long-term planning. The Conservative pledge not
to meddle with tax free cash or tax relief will be greeted with relief.
However, Labour made no such pledge in their own manifesto, leaving the
door open to further tax tinkering. Rachel Reeves’ prior support for a
flat rate of tax relief has started the rumour mill spinning – although
sources say such a move is not current Labour policy. A clear indication
in the manifesto would have gone a long way to quelling these rumours.
In the meantime, people should continue to make best use of the various
allowances in place to boost their pension planning.
Lifetime pensions
Lifetime pensions have the ability to transform the pension market, by
putting people in control of where their contributions are paid. It’s a
move that can do much to boost competition in the market among
providers, as well as helping solve the burgeoning issue of lost pension
pots. They didn’t get a specific mention in the manifestos, but it’s an
area the Conservatives have shown great interest in. It’s also to be
hoped they would feature in the overarching review of the pension
landscape that Labour has promised should they win the election.
Improvements to the Lifetime ISA for the self-employed
LISA pledges were notable for their absence. Pensions are the main
product for retirement planning, but for some groups, such as
self-employed basic-rate taxpayers, a Lifetime ISA may be a better
option. The 25% government bonus on contributions up to £4,000 per year
acts in a similar way to basic rate tax relief and any income is taken
tax free. Added to this, there is the ability to take money from your
LISA early should your income fall, albeit subject to a penalty. This
flexibility could be incredibly useful to a group who may be unwilling
to tie money up in a pension until the age of 55 (or even 57).
However, we do need to see changes made to make the LISA more appealing.
The 25% penalty on early access not only takes away the effect of the
government bonus, but a slice of your hard-earned savings too. Added to
this, you can only currently open a LISA of you are aged between 18-39.
The reality is many people become self-employed later in life, so would
be unable to take advantage. We would like to see the exit penalty
reduced to 20%, so that only the government bonus is lost on early
access, and we would like to see people able to open a LISA up until the
age of 55.”
Tax simplification
Sarah Coles
“Making tax more straightforward hasn’t been a key governmental mantra
for a while, and it was disappointing that it didn’t get a look-in
within the manifestos either. Over the years, income tax has naturally
become more complex, with regional differences in the thresholds and
rates, but tax relief on things like pensions implemented on a UK basis.
While nobody wants to see endless tax tinkering, if there are any tax
changes to come, they need to make it straightforward for people to
navigate the tax landscape and do what’s best for their circumstances.
You shouldn’t need the services of a tax adviser to work out the best
way to save and invest for your future.
Advice/guidance
It was disappointing we didn’t get any mention in the manifestos of all
the great work that has been done to help clarify the rules around
helping people get to grips with their finances. Currently financial
advice is well regulated, but it’s costly and so is only used by a small
proportion of people. Firms can provide guidance, but can’t currently
personalise it, or use it to drive people towards positive outcomes,
without it being classified as advice. So far, in the review of the
boundary between guidance and advice, the FCA and Treasury proposed a
new category of targeted support, so providers could make
recommendations based on what ‘people like you’ should do. This would
make the information more useful, without crossing the line into advice.
Given the support from across the political spectrum for this idea, it’s
to be hoped that this was eased out of the manifestos purely on grounds
of space. A new government has the opportunity to accelerate this
process to a conclusion, and it would be a crying shame if an election
did anything to hamper its progress.”
The NatWest share sale
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Although The NatWest share sale has been put on ice, due to the General
Election campaign, it was mentioned in the Conservative manifesto as
still being part of the plan. However, it was omitted from the Labour
manifesto.
Schemes like this have the power to encourage new investors, so ideally
this will be revisited by whoever wins the election. Research from HL
shows that past privatisation schemes brought in newcomers and
super-charged investing habits for many novice shareholders. 25% of
people say they invested in privatisations between the late 1970s and
2014. Of this group, a third of people (34%) still hold at least one of
the companies they invested in, so schemes like this do have the power
to incentivise people to start on an investment journey.
The British ISA
There has been a lot of talk about the potential for a British ISA to
help kick-start more investment into the London Stock Exchange – however there was no mention of it in either the Labour or Conservative party
manifestos.
Both parties have said they want to encourage saving and investing. This
could be done through lifting the overall ISA allowance, rather than
introducing another layer of complexity.
If the aim is to make investing in UK equities more attractive, there
are other measures which could be used. All too often, retail investors
are cut out of IPOs and secondary capital raising rounds. It’s essential
that the FCA Review of the listing regime puts improving retail
investors’ rights at its heart. There was no mention in the
Conservatives or Labour manifestos of cutting stamp duty on UK share
purchases or increasing the dividend or capital gains tax allowances,
which may disappoint some investors.”
Comments