Columnist

Labour's first budget must deliver clarity

In its manifesto, Labour pledged no tax rises for working people.

It will be interesting to see how this commitment is reconciled with a larger-than-expected financial black hole.

It will also be intriguing to see if Labour moves forward with closing the non-dom tax regime benefits and looks to increase the tax on certain investments that give rise to capital gains tax, rather than income tax.

We could see businesses and individuals paying more tax without an explicit rise in headline tax rates.

For example, reducing the threshold for tapering the personal allowance from £100,000 to £80,000 would effectively increase taxes without raising the rate.

Similarly, companies currently claim relief for inflationary increases on assets held since before December 2017, but individuals and unincorporated businesses do not have the same benefit.

Removing this relief could, in theory, create a fairer tax system.

Capital gains tax is often viewed as a tax on the wealthy, making it an obvious target.

However, excessive increases could deter investors and business owners from selling, waiting instead for potential changes in government by 2029.

This delay could stifle business growth, especially if owners demand higher prices to offset the increased tax burden.

If an increase is inevitable, I wouldn’t be surprised to see the return of taper relief.

Inheritance tax is seen by many as unfair, taxing assets that have already been accumulated post-tax.

We might see restrictions to business relief, or even the removal of tax reliefs for pension funds upon death.

Reforming the pension system is a huge undertaking, particularly given the differences between public and private sector pensions.

However, we could see the re-introduction of the pension lifetime allowance as an immediate measure, with broader pension reforms deferred to 2026/2027.

Uncertainty is rife right now, and business owners need clarity.

The sooner the budget arrives, the better, so businesses can plan based on concrete facts, rather than speculation.

I’d like to see incentives such as a re-introduction of the super deduction for capital investments and support for SMEs to help them manage the rising minimum wage rates.

Lee Watson is a tax partner at Clive Owen LLP

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