What does a Labour Government mean for your finances?

As the new Labour government is ushered in, you are probably wondering what this means for your finances. So I’ve set out the key areas and likely changes below to give us more of an idea of what to expect in the coming months and years.

Taking stock

Initially, Labour is not expected to rush into major policy changes. Instead, the new government will take stock and conduct a spending review before making significant announcements. 

Fortunately, Labour inherits a relatively stable economic situation: high tax revenues, falling inflation, low unemployment, and the Bank of England close to cutting interest rates. However, growth forecasts remain modest, and the overall fiscal position – the use of government revenue collection and expenditure to influence a country’s economy–  is tight

Labour’s agenda is expected to be growth-focused, emphasising a “decade of national renewal.” What this means in reality is unclear, however growth is usually as a result of investment so we are likely to see more investment in certain industries.

Taxation plans 

Whilst Labour has committed not to raise most core tax rates, their manifesto details some tax changes:

– Energy Profits Windfall Tax: Projected to raise £6bn.

– VAT on Private School Fees: Expected to raise £1.5bn.

– Non-Dom Regime Adjustments.(Non – Dom is a British tax status that allows some foreigners to pay UK taxes only on their UK income)

Labour has hinted at potential changes in areas like pension tax relief, capital gains tax (CGT), and a possible tax on online retail transactions. 

Rachel Reeves has expressed a desire to reform and simplify business rates, reduce the overall tax burden, and ensure debt falls as a share of the economy by the fifth year of government.

Despite its widespread unpopularity, Labour is unlikely to make significant changes to inheritance tax, which affects less than 4% of the population. Despite the low percentage, inheritance tax is affecting more people every year, due to the rises in people’s property values

Budget increases in health and education are expected, which align with Labour’s pledge.

Growth strategy

The plan here is to balance increased spending with managing public finances. To achieve this, Labour’s growth agenda includes several key initiatives:

– Planning Legislation Overhaul: Significant changes to encourage development.

– National Wealth Fund Creation: To support investments.

– Devolution of Power: Following models like Manchester to empower regions.

– Encouraging Domestic Investment: Leveraging UK pension funds and private capital through initiatives like a UK ISA.

– Green Energy Transition: A key commitment, with Keir Starmer personally invested, though Rachel Reeves shows less enthusiasm.

What this means for your finances

We probably won’t see any big money changes until the Autumn Budget, and these changes will start showing up next April. 

Here’s what you can do in the meantime:

– Consider utilising your Pension contributions. You have up to £60,000 per year that you can contribute with potential tax benefits. It might make sense to add what you can this year before any rules change. It’s important to know that pensions are still protected from capital gains tax and are great for saving money on taxes. 

– Inheritance tax worries? There are several actions you could take to protect your assets. There are also several allowances which many people often overlook. These can help reduce the inheritance tax burden.

– Paying private school fees? It’s worthwhile focusing on your financial planning. Utilising a tax efficient and growth focused strategy is likely to be a much better use of your time than worrying about if VAT is going to be added to school fees. Cash flow is also one of the tools that I find really helpful when planning with my clients. 

– Lastly DON’T PANIC! Often there is a gap between what a Government’s pledges are and what actually happens. Sometimes, there are taper reliefs available too. Whenever there is a change, just ask yourself “am I still on track to reach my goals?” nothing else matters.

If you are unsure, overwhelmed or simply need to work out exactly what these potential changes mean for you, feel free to book a discovery call.

Want to find out more?

Reach out to us below, we’d love to hear from you.

The value of pensions and investments can fall as well as rise, and you could get back less than you invested. The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.