With just a month to go until 8 June’s general election, Britain’s political parties are steadily setting out their plans for how they will raise revenue and spend should they take power of the country.
No party has published a manifesto – these are expected in the next week. But there’s been a gradual drip of information, providing an insight into how your income, savings or investments might be taxed in the future.
Which? Money has sifted through the campaigns to explain what we know so far about the taxation plans of the major political parties.
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Conservative tax plans
The previous Conservative government made a commitment not to increase VAT, income tax or National Insurance when it came to power in 2015.
Other tax changes – such as those on dividends and pensions – are not going ahead pending the outcome of the election.
The Conservatives have so far pledged no VAT rises through to 2022 (the end of Parliament), but have not repeated the ‘tax lock’ pledge of 2015.
Few further details are available on Conservative tax plans, although Theresa May was recently quoted as saying: “The Conservative party… always has been, is, and will continue to be a party that believes in lower taxes.”
Labour tax plans
Last weekend, the Labour party revealed more about its taxation plans. Shadow Chancellor John McDonnell confirmed that, should it come to power, Labour would not increase tax for 95% of taxpayers, but income taxes would increase for those earning £80,000 a year or more.
It has not confirmed how much tax would increase by or how the tax thresholds would be set. Currently:
- People earning up to £11,500 pay no tax
- 20% is paid on earnings up to £45,000 (£43,000 in Scotland)
- 40% is paid on earnings between £45,000 and £150,000
- 45% is paid on amounts above £150,000
The Labour party has also pledged to reverse capital gains tax cuts, which last year were reduced from 18% to 10% for basic-rate taxpayers, and 28% to 20% for higher and additional-rate taxpayers.
The tax increases would pay for a number of the party’s spending priorities, including an increase to the police force and extra schools funding.
Liberal Democrat tax plans
The only tax detail made public by the Liberal Democrats so far is a 1% increase on income and dividend taxes, with the revenue raised specifically for the NHS and to fund social care. This means that:
- Basic-rate income tax would increase to 21%
- Basic-rate dividend tax would increase to 8.5%
- Higher-rate income tax would increase to 41%
- Higher-rate dividend tax would increase to 33.5%
- Additional-rate income tax would increase to 46%
- Additional-rate dividend tax would increase to 39.1%
Dividends are a share of the profits a company makes that it pays to shareholders. You can currently earn £5,000 in dividends tax-free before you pay any tax. It is not yet known whether this would change under the Liberal Democrats.
Scottish National Party tax plans
New powers were recently handed to the Scottish government to give it more control over how it can raise revenue.
Some 10% of the tax Scottish residents pay on their income – called the Scottish Rate of Income Tax – is sent directly to the Scottish government. Scottish residents also pay a lower UK rate, but their overall tax rate is the same as other residents in the UK.
For example, a basic-rate taxpayer living in Scotland would pay 10% in Scottish income tax and 10% in UK income tax, equal to the 20% basic-rate tax other UK residents pay.
In future, Holyrood might change the Scottish Rate of Income Tax, but under the devolved tax system, any reduction or increase to the basic rate must also apply to the higher and additional rate, and vice versa.
For the 2017/18 tax year, the higher rate of income tax (40%) kicks in at a lower income of £43,000, compared to £45,000 in the rest of the UK.
Find out more in our guide to income taxes in Scotland.