‘Corb Your Enthusiasm’: Potential Reforms Under the Labour Government
12 / 08 / 2019
In this instalment of Globally Speaking, we look at some of the reforms that could ensue if Labour Party under the leadership of Jeremy Corbyn were to enter into power and form the next UK government.
These reforms are based on a combination of Labour Party manifesto pledges and the proposals outlined in a report commissioned by the Labour Party entitled ‘Land of the Many’, following an independent review of property tax and land usage in the UK, published earlier this summer.
- Capital Controls
In 2017, the Shadow Chancellor, John McDonnell, stated that the Labour Party had plans in place in the event their election caused sterling to fall in value. This led some to predict controls to prevent capital leaving the country. The Shadow Chancellor has since ruled this out, although many of our clients and contacts remain unconvinced.
2. Wealth Tax
Speculation has centred around the possible introduction of a wealth tax, possibly targeting residential property. John McDonnell praised the concept of a wealth tax in a 2012 speech to Labour members, referring to a 20% levy on the wealthiest 10 percent but as we will explain below, this concept has evolved over time into a proposed annual tax levy on the value of land.
3. Increased rate of Capital Gains Tax (CGT)
Residential property gains currently attract CGT of up to 28%. The Labour Party have already declared their intention to increase the rates for gains on other assets to that level. They have also indicated a willingness to extend the scope of CGT to domestic property owners who currently do not pay CGT on any gain arising on the disposal of their main residence in lieu of charging Stamp Duty Land Tax (SDLT) on the purchase of property.
4. Inheritance Tax relief on farmland
Agricultural Property Relief (APR) and Business Property Relief (BPR) have the effect of reducing or fully alleviating inheritance tax (IHT) on a person’s death on certain farms, farmhouses, associated farm properties and woodland. The Labour Party propose restricting the application of APR and BPR to counteract its perceived use as a ‘tax shelter for the super-rich’.
5. Property taxes
The Labour Party propose the introduction of a Land Value Tax to replace Council Tax and possibly also Business Rates, as well as a 15% Offshore Company Property Levy (OCPL) for purchases of residential property by companies resident in certain ‘secrecy’ jurisdictions.
It is not clear at this stage how a OCPL would differ from the current annual tax on enveloped dwellings (ATED) but it is likely to be wider in scope by applying to properties worth less than £500,000 and may even extend to non-residential properties.
A Labour government could conduct a major overhaul of SDLT with its abolition for purchasers buying properties as their main residences, with an onus moving to second home owners and buy-to-let landlords with property portfolios. It is not clear whether Labour would follow through with the proposal to introduce an SDLT surcharge on foreign property purchasers as proposed earlier this year by the current Conservative government as part of this overhaul. We reported previously that the government has since delayed the implementation of this proposal.
The radical nature of some of the proposals contained ‘Land of the Many’ report – effectively to abolish SDLT for property occupying purchasers but charge CGT on sale – were widely criticised in the media upon its publication. We should not therefore assume that all of these proposals would become law. What is clear though is that through the sentiment expressed in the report it is likely that any tax reform implemented by the Labour Party is likely to see a greater tax burden on foreign property purchasers and existing property owners. Inferences as to secrecy in offshore jurisdictions and other such rhetoric in the report only serves to perpetuate the notion that offshore jurisdictions, and the people who use them, do so for less than legitimate means.
We live in politically uncertain times in the UK, as we prepare to Brexit from the EU under the leadership of Boris Johnson. Mr Johnson’s approach will either see him through as Prime Minister or lead to a further general election – the third in five years – and the likelihood of a new government. Quite whether this will be a Labour government is less than certain though, with party infighting and a lack of clarity over the party’s Brexit stance contributing to a feeling that the Labour Party will be unable muster the majority required to ensure their tax policies (as currently proposed) actually become law.
We regularly assist clients with structuring their UK property ownership and to mitigate against political uncertainty. Please contact Matt Braithwaite or your usual contact if you would like to discuss further.