As announced shortly after Spring Budget 2024, Labour is committed to adopting the Conservative government’s proposed reforms to the taxation of non-UK domiciled individuals, and going further in two respects by:

• reducing the generosity of the transitional provisions proposed by the Government; and
• removing the trust protections by which non-UK property settled on trust by non-doms prior to 6 April 2025 would not be subject to UK inheritance tax.

Read more about Labour’s plans in this area in our Taxation of individuals update.

One of the earliest tax policies announced by Rachel Reeves on becoming Shadow Chancellor was an intention to reform the taxation of carried interest. This is reflected in the Labour manifesto which states: “Private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole.” The manifesto costings table shows this policy raising additional revenues of £565m per annum by 2028-29.

The Labour manifesto has not provided any detail about the specific changes they are contemplating. However, Rachel Reeves has been quoted in the Financial Times as saying “I don’t think it is right that…what is essentially a bonus is taxed at a lower rate than employment income, when you’re not putting your own capital at risk”. It therefore seems possible that Labour would increase the tax rate and/or narrow the circumstances in which carried interest is taxed as capital gains, to limit the availability of capital gains tax treatment to situations where fund managers are putting more than what Rachel Reeves refers to as a ‘tiny’ sum of their own capital at risk.

However, it could be viewed (and consistent with previous HM Treasury modelling that was leaked to the press in 2023) that the forecast revenue raise of £565m is uncertain, and is likely to be very sensitive to changes in taxpayer behaviour and natural fluctuations in the carried interest tax base, which varies with general economic conditions. Therefore, as to precisely how a Labour government would achieve this, we expect that they would need to work with Treasury officials to design reforms that maximise revenues and help to continue to grow the UK private capital industry.

A policy that has received considerable media attention is Labour’s proposal to apply VAT to private school fees. Labour forecast that, together with a linked policy to bring private schools within the scope of ordinary business rates, this will raise £1.510m per annum by 2028-29.

Read more about Labour’s plans in this area in our Taxation of individuals update.

Labour proposes to raise an additional £40m per annum by increasing the rate of SDLT paid by non-residents on residential property purchases by one percentage point.

Read more about Labour’s plans in this area in our Taxation of individuals update.

The single biggest revenue-raising measure in the Labour manifesto is an undertaking to bear down on tax avoidance and evasion – this will entail £855m per annum of additional investment in HMRC and is forecast to raise c.£5bn per annum by 2028-29.

While it is likely that there is scope to raise revenues by increasing investment in HMRC, translating that into improved compliance yield is a difficult practical challenge that will have a material lead-time and therefore a risk that the forecast revenues are overly optimistic.

Our Tax Litigation team explore some of the issues in this area in greater detail in our article.

The Labour manifesto includes only a handful of substantive business tax policies, which we have outlined below. However, it also provides a helpful sense of overall direction. Labour acknowledges the high volume and pace of business tax changes that have occurred under the current government, and set out their ambition to return to a more methodical process of policymaking. That includes a commitment to hold only one major fiscal event per year, and to publish a business tax roadmap that would set out a Labour government’s plans for the next Parliament. Greater certainty and stability would undoubtedly be welcomed by businesses, although a Labour government would also need to consider how to embed that into HMRC operational practice, which can be a source of uncertainty even in areas where the policy is settled.

• Capital allowances – Labour are committed to retaining permanent full expensing and the Annual Investment Allowance. The manifesto states that a Labour government would provide greater clarity on what expenditure qualifies for capital allowances but does not explain how this would be achieved.
• Business rates reform – Labour’s manifesto identifies the current business rates system as being a barrier to investment and detrimental to high streets and reiterates a previously announced commitment to replace it with a reformed system (although the proposed model is unclear).
• International tax reform – the manifesto includes commitments to support the OECD’s Pillar One and Two tax reform initiatives, which respectively aim to reform profit allocation rules and introduce a global minimum tax for multinationals. While Pillar Two is well on the way to implementation (including in the UK under the current government), it is looking increasingly unlikely that Pillar One will garner sufficient international support, so an incoming Labour government might face a difficult issue in deciding how to respond if Pillar One fails.
• Energy taxes – Labour have criticised the Energy Profits Levy (EPL) – the so-called “windfall tax” imposed by the current government on North Sea oil and gas production – for being overly generous. The manifesto reiterates previous commitments to increase the EPL rate by three percentage points, to extend the sunset clause to c.2029, and to remove investment allowances.