What an election may mean for your finances

What an election may mean for your finances

We look at the possible outcomes for tax, pensions, savings and property under a new government

Carol Lewis, September 7 2019, 12:01am,

The Times

There is a much-cited dictum that people vote with their wallets. Hence politicians tend to focus on personal finance — income tax, stamp duty and pensions — in the lead-up to a general election.

Within the next day or two we could learn the likely date of the next election. However, with politicians short of time and their attentions focused on other matters, the party manifestos are likely to be more piecemeal than usual.

Steve Webb, the director of policy at Royal London, an insurer, says: “If a new government ends the uncertainty over Brexit, one way or another, this could improve the economy and investment returns. But if it mishandles Brexit, there could be serious economic consequences for people’s wages and investments.”

So how will an election hit our wallets?

Interest rates
While rates are widely expected to plummet to offset a no-deal Brexit, a key consequence of a Labour win could be the opposite. Webb says: “If a Labour government was expected to borrow heavily, this could lead to a sharp increase in interest rates.”

This might be good news for savers and those buying annuities, but bad news for those with mortgages. Webb says: “Higher interest rates would also reduce deficits in company pension funds.”

Income tax
During his campaign to become the Tory party leader Boris Johnson pledged to raise the threshold for higher-rate income tax in England from £50,000 to £80,000. At present 40 per cent tax is levied on income of between £50,000 and £150,000. Scotland and Wales set their own tax bands. This policy would not be all good news for higher-rate taxpayers because they could lose tax relief on their pension savings.

Steven Cameron from Aegon, an insurer, says: “An increase to benefit higher earners will be partly offset by a proposed increase in national insurance contributions and the loss of higher-rate tax relief on pension contributions.”

Webb believes that “other, less high-profile tax rises” could be introduced to pay for the tax cuts.

If Labour won an election, Webb says: “Labour has a radical policy agenda, which would seriously dent the incomes of the wealthy. Labour has talked about increases in income tax for higher earners, increases in corporation tax, increases and reform of inheritance tax, and increases in capital gains tax.”

Labour has proposed that the 45 per cent additional income tax rate will kick in at £80,000 rather than £150,000 with a 50 per cent rate to apply to income over £123,000.

Pensions
The Conservatives have promised to look at the pension tax rules for higher earners after it emerged that NHS workers were cutting their hours to avoid paying more tax.

The tapered allowance — which whittles down the amount you can save tax-free into a pension once you earn over £150,000 from £40,000 a year to £10,000 — is particularly unpopular. Cameron says: “The pension lifetime and annual allowances are a disincentive to work and we need action across the board, not only for the NHS.”

Labour has indicated that it might reduce pension tax relief, while the Liberal Democrats have said that they would introduce a flat 20 per cent rate of tax relief on pension contributions and abolish employee national insurance payments on the contributions.

Housing
Private landlords haven’t had it easy under the Conservatives, but they are unlikely to fare any better under a Labour government.

George Bull, a senior tax partner at RSM, an accountancy firm, says: “John McDonnell’s recent suggestion that a Labour government would give private tenants the right to buy their homes at a discount is causing consternation, coming hard on the heels of Conservative government restrictions to the tax regime for private landlords.”

The Conservatives have hinted that they could look at reforms to stamp duty and greater incentives for first-time buyers, including an extension to the government’s Help to Buy scheme and a continuation of its Lifetime Isa (Lisa). The Scottish National Party said that it would abolish “gimmicks” such as the Lisa.

POSSIBLE POLICIES

Conservatives
• Raise the 40 per cent income tax threshold from £50,000 to £80,000
• Replace the pension triple lock (which states that the basic state pension will rise by a minimum of either 2.5 per cent, the rate of inflation or average earnings growth) with a double lock (inflation and earnings) from 2022
• State pension age to increase to 67 by 2028 and 68 by 2046
• Reduction in pension tax relief for high earners
• Means-tested winter fuel payments

Labour
• The 45 per cent additional income-tax rate threshold to be lowered from £150,000 to £80,000
• A 50 per cent tax rate to apply to income of more than £123,000
• Freeze state pension at age 66
• Keep the pension triple lock until 2025
• Add 20 per cent VAT on private school fees
• Give private tenants the right to buy their homes at a discount*
• Large businesses to transfer up to 10 per cent of shares to a fund held by employees*

Liberal Democrats
• Limit the tax-free lump sum that can be withdrawn from pensions to £40,000
• Keep the triple lock on pensions
• Flat rate of tax relief on pension contributions of 20 per cent
• Abolish employee national insurance on pension contributions
• End winter fuel payments for higher-rate taxpayers

Scottish National Party
• Opposed to lowering income tax thresholds for higher earners
• Have pledged to campaign to keep the pensions triple lock
• Opposed to an increase in the state pension age beyond 66
• Extend eligibility of winter fuel payment to families with severely disabled children
• Business rate exemption on private schools to be lifted