The author of this article – the third in a series – examines where the 4 July election in the UK leaves the role of tax advice.

This is the third in a series of articles from Katharine Arthur, partner at accountancy firm haysmacintyre. (See the first and second articles.) A Labour government is now in office, with a large majority of seats – albeit with just 35 per cent of the total votes cast. Tax is a major issue and likely to remain so as the government seeks to meet its objectives for infrastructure spending and healthcare, for example, while not repelling those voters who may have switched allegiance on 4 July. 

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It is not every day, or even every year, that we have a change of government in the UK. Indeed, we have seen a change of government (at least in the traditional sense) just three times since 1997. But change tends to walk hand-in-hand with uncertainty, and uncertainty is rarely a welcome companion for tax agents and their clients.

Now in the wake of the Labour party’s election to government, some advisors and clients may be taking stock of what happens next. Manifestos unveiled in the weeks before the election outlined each party’s intentions should they have won the election. But the reality is that we won’t have a truly clear picture of the new government’s tax plans until the first Autumn Statement later this year. Rachel Reeves, the new Chancellor of the Exchequer, has promised to share the date of the Budget, before Parliament’s summer recess.  

This leaves tax agents in the difficult position of being unable to tell their clients with absolute certainty what their tax position will be in the coming months – whether that is paying value-added tax on school fees, their capital gains exposure on disposing of assets, or the proposed fundamental changes to the non-domicile regime. This matters because, for taxpayers, the issue of uncertainty is far from academic.

On the contrary, changes to their tax position will have a very real impact on their lives. For instance, some may be looking to move abroad permanently in light of the proposed changes to the non-dom regime, others may need to consider different schooling options for their children if VAT is charged on school fees, or take steps to sell their business now in case the capital gains tax (CGT) position changes.

Without the clarity that will only emerge after the Autumn Statement, it will have to suffice to keep a very close eye on what the new government announces or commits to in the meantime. Nevertheless, that does not mean that nothing can be done to prepare for potential tax changes coming down the line.

Navigating the uncertainty
A simple way to negate any potential changes to the tax regime is to complete any potentially taxable transactions before concrete changes are announced. This may not be the right course of action for every individual and business, but for others, it will prove very effective. For instance, some businesses may decide to pay dividends early to avoid any tax increases coming into force. Similarly, individuals may want to speed up the process of realising their gains on an asset, whether that is a holiday home or a business, to ensure that they have clarity on their CGT liability.

Similarly, as both the Conservatives and the Labour Party had pledged before the election to introduce changes to the non-domicile (non-dom) regime, long-term resident non-doms may have already been looking to review their domicile status, realise capital gains, bring forward income and considering the options of investing through tax wrappers which may defer UK tax. Other non-doms who are truly dissatisfied with the planned changes could simply have taken the opportunity to vote with their feet and made plans to leave the UK.

Moving the dial on discussions about tax
It would be helpful to change the political debate on tax to be more honest and productive. There has been no shortage of discussion about the importance of closing the tax gap and clamping down on tax evasion in this election, and the focus on this is of course welcome. 

However, we have also had the new government’s pledge, before the election result, not to increase the rates of headline taxes such as income tax, VAT and National Insurance, in spite of the state of the UK’s national finances. It seems inevitable that taxes will have to be raised in one form or another over the course of the next parliament. That is perhaps most likely to be via a “stealth tax,” for instance by expanding the scope of VAT without increasing the rates. The other is through fiscal drag. In the run-up to the polling date, the Labour party had stated plans to keep tax brackets frozen in place until 2028, which means a growing percentage of the population would be brought into higher bands through inflation. 

There is also the issue of whether it will actually be feasible for the new government to keep their pre-election pledges not to raise headline tax rates without tying their hands unnecessarily on spending.

What might prove to be more useful would be to have a serious national discussion about how the tax system can be simplified to ensure it functions more effectively, particularly when it comes to encouraging growth. Taxpayers and tax agents alike face almost unmanageable complexity, whilst HMRC struggles to cope with the strain. Meaningful reform, targeting not tax rises around the edges but instead changing how tax is collected would accordingly offer a more useful route forwards.

Reforms to the tax system might be easier said than done, but it would bring much-needed relief to taxpayers, tax agents and HMRC. A more simplified tax system should also help to ensure that future changes to taxation rates can be delivered in a comparatively straightforward manner, making the inevitable uncertainty that accompanies an election season that much easier to manage.

In the meantime, and in the current absence of any firm promises to introduce changes that would meaningfully simplify the tax system, the most that tax agents can do is to make sure that we are advising our clients using all of the information that we do have to hand, whilst awaiting the new legislation that will follow in due course.