A lack of clear detail in the UK political party manifestos about tax ahead of the UK general election is frustrating, making guidance for HNW individuals more difficult perhaps than in certain pre-election cycles.

Unsurprisingly, in the approach of a UK general election (4 July), tax is a big issue. (See the editor's opinion on what the election means for wealth management.) This article, from Katharine Arthur, partner and head of private client, at accountancy group Haysmacintyre explores what’s being proposed by the major UK political parties, and the implications for wealth managers. 

The editors are pleased to share this content; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com if you wish to respond.

Manifesto promises might usually be taken with a pinch of salt by most of the voting public, but insofar as they provide an insight into the major parties’ intentions following a general election, they have to be treated seriously and, as far as possible, taken at face value by tax agents. After all, a key part of our role is to help clients plan their tax affairs for the future, a task that is made much more difficult by the uncertainty that inevitably accompanies a general election. In such an uncertain environment, manifestos offer the best available idea about what will come next and, accordingly, how clients should be preparing for it.

For a relatively straightforward example, take the reforms proposed by the Labour Party to the VAT regime which will remove the exemption currently enjoyed by school fees. This will increase said fees by 20 per cent and many parents will be considering their finances and their children’s schooling as a result, particularly as the polls currently suggest that a Labour majority is the likeliest outcome of the election. But that policy does not appear in the Conservative manifesto, and consequently offers what effectively amounts to a binary either-or scenario. The picture becomes rather more complicated when the major political parties propose changes to the tax regime that could fairly be described as variations on a theme.

The state of play
An instructive example of the challenges this can pose is reform to the non-domiciled regime. This promises to be one of the most significant changes to the UK tax system in recent memory and both the Conservatives and the Labour Party are advocating reform in this area, meaning that it is almost certain to proceed in one form or another following the election. Some of the non-domiciled individuals who will be affected have accordingly already made the decision to vote with their feet and leave the UK.

But for those who plan to stay, the specifics of the Labour and Conservative policies have unsurprisingly taken on considerable importance. The Conservatives’ plans for reform, originally announced in the Spring Budget, have created more questions than they have answered so far, but it is at least clear that the remittance basis of taxation for non-domiciled individuals will be replaced by a residence-based regime, with tax set to be levied on their foreign income and gains.

Non-domiciled individuals who are set to be impacted, however, may have been disappointed that there was no further reference to these plans in the Conservative manifesto.

The Labour Party, meanwhile, has stated that its plans are to “close the loopholes” and included this plan in its manifesto, pledging to replace the regime with ‘a modern scheme for people genuinely in the country for a short period’. But the details are regrettably not expanded on, leaving non-domiciled individuals (and their tax advisors) short of further clarity on what this ‘modern scheme’ will look like in practice, leaving us waiting for details that will not be revealed until after the country has been to the polls, the Chancellor delivers their budget, and draft legislation is published. For reform of the non-domiciled regime, read also inheritance and capital gains tax changes, or National Insurance cuts.

In the run up to a general election, it is inevitable that there should be a degree of uncertainty given that the result may be a change in government. But the difficulty in predicting the shape and substance of the proposed reforms will take not only makes it difficult to offer advice on how to prepare – it is also indicative of the need for wider changes aimed at simplifying the tax regime. Unfortunately, the manifestos are silent on that front.

Investment in HMRC
One welcome area of focus is the pledge to tackle the tax gap, which recently reached £40 billion. Tackling this gap, and collecting tax more efficiently and effectively, is essential, but it also won’t be straightforward – particularly whilst HMRC remains understaffed and underfunded. 

For instance, training for HMRC used to be a gold-standard but HMRC’s agents no longer have access to the resources and training they need to deliver an effective service, and even being able to speak to an HMRC employee remains far too difficult.

On the positive side of the ledger, the decision to close the helplines seasonally has been reversed, but cumulatively taxpayers still spent seven million hours on hold to HMRC over the last financial year, which is equivalent to 800 years, which means that for many the helplines may as well have been shut. That matters, because the difficulty taxpayers face in paying their tax is, unsurprisingly, a significant obstacle to closing the tax gap.

Unless promises such as the pledge to “modernise HMRC” are accompanied by the required funding commitments, we may see the situation deteriorate further. Of course, the purpose of a manifesto is not to lay out a detailed explanation of the next government’s funding strategy for HMRC, or other government departments for that matter.

But it is nonetheless vital that proper care and attention is paid to tackling HMRC’s funding crisis and, thus far, there has been little evidence that is the case from across the political spectrum.

That is particularly concerning because manifesto pledges may be costed on the basis that money can be raised by closing the tax gap, but without specifying how the tax gap is going to be closed, an ambition that is likely to require investment. 

In the end, in the absence of more concrete information, there is not much more to be done other than to watch and wait for further developments and, in due course, new legislation. That said, we might still wish that manifestos offered slightly more detail. Without that detail, the best advice that can be offered in the face of such election uncertainty is to consider carefully the best next steps whoever wins the election.