How could the 2 leading parties effect our personal taxes?
There is a stark contrast between the two main parties in respect of personal taxation. The Conservatives have retained their pledge to increase the Personal Allowance to £12,500 and the higher rate threshold to £50,000 by 2020. They have also thrown away the shackles of David Cameron’s “triple lock” guarantee to not raise Income Tax, NIC or VAT. In scrapping this 2010 election promise, Theresa May has created room for manoeuvre, by giving a general statement of intent to lower tax and “simplify” the system.
Labour on the other hand, has guaranteed not to increase Income Tax for those earning below £80,000 (which it believes covers 95% of taxpayers), and promises no personal NIC or VAT increases. The top 5% would contribute more in Income Tax as Labour propose to introduce a 45% rate for those with income over £80,000 and reintroduce the 50% rate for those with incomes more than £123,000.
Considering Labour’s aggressive stance on top earners it may be safe to assume that the current Personal Allowance tapering charge will remain. If it does, the effect of the tapering charge, combined with the 45% Income Tax rate above £80,000, would mean that income between £100,000 and £123,000 would be taxed at an effective rate of 67.5%, dropping to £50% from £123,000 and above. If that income was earnings, adding 2% Employee’s NIC would mean a total marginal tax/NIC rate of almost 70%.
It will have been many years since the UK saw a marginal tax rate quite this high and, if taxpayers face losing more than two-thirds of their to tax, many will look for planning options to avoid paying such a punitive rate.
It can often be the case that an increase in tax rates does not always equate to the predicted increase in tax take for the Exchequer. When Labour first introduced a 50% rate back in 2010, many higher earners could plan and tailor their income to avoid paying the higher rates, with some accelerating income to avoid the initial impact of the higher rates.
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