Upcoming policy shifts under the Labour Government

There was a lot to unpick in Rachel Reeves’ statement on public spending on Monday, not least several announcements affecting individuals and their families. Much of this will not come as a surprise but adds flesh to the bones of various Labour pre-election promises.

Key takeaways:

• Confirmation of the government’s manifesto pledge to replace the non-domiciled tax status with a new residence-based regime from April 2025. Read a more in-depth analysis of this policy announcements here.
• Starting from 1 January 2025 VAT will be charged at the standard rate of 20% on private school fees, including boarding services. Draft legislation confirms this change, and clear anti-forestalling measures are in place to prevent early payment for the January 2025 term or later. Accordingly, any fees paid from 29 July 2024 for schooling from 1 January 2025 onwards will be subject to VAT. There are no retrospective provisions so fees previously paid in advance are outside the scope of this draft legislation. However, this could be subject to challenge if HMRC do not accept that the services were delivered in advance of 1 January 2025. Schools should be cautious and seek professional advice (if they have not done so already) to ensure their payment structures comply with the new VAT legislation.
• The government confirmed its commitment to close the “carried interest loophole” by launching a call for evidence on the current tax treatment. Carried interest is a form of performance-related reward received primarily by Private Equity executives, which allows the reward to be taxed as Capital Gains at a rate of 28%, unlike other such rewards which would be taxed as income at a rate of 45%. The announcement did not provide any further policy detail. The consultation is due to close on 30 August 2024 and further announcements expected in the autumn budget.
• The scrapping of winter fuel payments for pensioners who are not in receipt of pension credit or means-tested benefits. This is projected to affect 10 million pensioners, saving around £1.5bn.
• The scrapping of the previous government’s plan to cap an individual’s contribution to their social care costs at £86,000. This had previously been set to be introduced in October 2025.

The autumn budget will take place on 30 October 2024, where we can expect further announcements on “spending, welfare and tax”. Whilst there was no mention yet of changes to Inheritance Tax or Capital Gains Tax, Labour are clearly setting out their stall for making “difficult decisions” to plug what Rachel Reeves says is the £22bn black hole in the public finances.

Our Private Wealth team will bring you the latest updates as they arrive to support you when navigating the upcoming changes.