The Liberal Democrats were the first of the main parties out of the gate and published their manifesto on 10 June 2024. While the polls consistently show support of Liberal Democrats around 10%, as noted by party leader Ed Davey in his foreword to the manifesto, in many constituencies the Liberal Democrats are the most likely party to displace a Conservative seat.
Where tax policies of the Liberal Democrats are similar to that of either larger party, it is possible that a deal between the parties could mean that one of those policies or a variant thereof find their way into law.
The Liberal Democrats claim the proposals set out in their manifesto would raise £27 billion per year. Many of the tax policies proposed, such as reversing the Conservatives' reduction on bank levy and bank surcharge, introducing one-off tax on profits of energy companies and increasing the Digital Services Tax on tech companies, will not impact individuals. However there are some proposals that would be felt by high-net worth individuals:
Capital Gains Tax
While the manifesto vaguely states that the Liberal Democrats will 'close loopholes exploited by the super wealthy', an article published on the party website on 10 June sets out the specific changes that will be made to bring the taxation of capital gains in line with the taxation of income tax.
Reforming capital gains tax was previously introduced by previous leader, Vince Cable, in 2018. At that stage the proposal would have brought capital gains into the income tax regime. The current proposal maintains the separation between capital gains and income, but introduces tax bands relatively similar to, though not the same as, the income tax bands:
- Gains up to £50,000 – taxed at 20%
- Gains between £50,000 and £100,000 – taxed at 40%
- Gains over £100,000 – taxed at 45%
Currently there are specific rates for gains made on the sale of residential property (24%) or carried interest (28%) as compared to the rate of 20% for all other gains. The article makes no mention of specific rates for these or any other types of gains and it is to be supposed that the different rates would not be continued.
The Liberal Democrats would increase the annual allowance for capital gains from £3,000 to £5,000 and also introduce an inflation allowance for gains that are 'purely the result of inflation'. For those with longer memories, this very much sounds like a return to indexation.
Income tax
The Liberal Democrats propose to cut income tax by raising the tax-free personal allowance. They have not specified the increase but it is unlikely this would be of significant impact for high earners, many of whom do not benefit from the personal allowance. No change would be made to income tax rates and there is no mention of any change to the taxation of non-UK domiciled individuals, which both Labour and Conservative have said they would seek to change.
Self-employed individuals should be aware that Liberal Democrats propose to review the IR35 reforms to ensure employees, dependent contractors and freelancers have 'fair and comparable treatment' though it is not clear what this would mean. The Liberal Democrats would also remove the unpopular loan charge.
Second homes
The Liberal Democrats want to give power to local authorities which would allow the increase of council tax by up to 500% on properties bought as second homes. They would also apply a stamp duty surcharge on overseas residents purchasing second homes. There are existing stamp duty surcharges for the purchase of a second home (3%) and for non-UK resident purchasers (2%) and it is not clear how the Liberal Democrat's new surcharge would interact with these.
International flights and private jets
The manifesto seeks to tax those who take the most international flights each year with the aim of raising £3.6bn. the Liberal Democrats have said those flying abroad once or twice a year will pay less than they do currently, those flying three times a year will pay about the same, and tax will be levied on those taking four or more flights abroad a year.
In addition, the Liberal Democrats would introduce a new 'super tax' on private jet flights and remove the VAT exemption currently applied to private, first-class and business-class flight tickets.
Investment in HMRC
The Liberal Democrats have said they will invest in HMRC so that it has the resources required to properly investigate tax avoidance and evasion. This mirrors the Conservative pledge to tackle tax avoidance and evasion and it is expected that the Labour manifesto will make a similar statement. After at least 20 years of such commitments being made annually by the party then in power it is very uncertain as to how much revenue could credibly be raised by such measures.
Both Labour and Conservative parties have said they will change the tax regime for non-UK domicilaries in respect of income and capital gains tax and inheritance tax. While in the past the Liberal Democrats have suggested abolishing inheritance tax altogether, their 2024 manifesto is silent on any changes to inheritance tax or to the taxation of non-domicilaries generally. Also not mentioned is any view on private school fees; introducing VAT on these fees has been one of Labour's flagship policies.
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