How a Labour Government Could Impact Your Finances
When political landscapes shift, so do the economic policies that influence our daily lives.
As of 05/07/2024, Labour have come into power within the UK. This brings with it a distinct set of priorities and economic strategies that can have significant effects on personal finances. Understanding there key policies can help you begin to plan your finances to be as efficient as possible. Here are some key areas where a Labour government can impact your finances:
1. Taxation
Labour governments typically advocate for a more progressive tax system, meaning higher taxes on the wealthy and corporations. This approach aims to reduce income inequality and fund public services.
Income Tax: If you are a high earner, you might see your tax rates increase. On the other hand, lower and middle-income earners may benefit from tax relief or credits. Some of the core allowances that are currently available within the UK are the following:
£20,000 Stocks & Shares ISA
£60,000 Pension Allowance
£3,000 CGT allowance
£500 Dividend Allowance
The Stocks & Shares ISA is currently a “use it or loose it” wrapper. This means that if you do not utilise this each year, your allowance will be reset in the new tax year. This could be an area that Labour look to tackle as it is a tax free wrapper to protect investors assets.
The pension allowance works slightly differently; you can go back up to 3 tax years and use any unused pension allowance that you have available. The current pension allowances are the following:
2024/25 - £60,000
2023/24 - £60,000
2022/23 - £40,000
2021/22 - £40,000
This could potentially be an area that Labour looks to tackle as the current pension levels can be seen as very high. The average salary in the UK is £34,963. This is close to half the amount that you are currently allowed to contribute into a pension if you have the recognised earnings to do so. Only increasing in 2023 under the Conservatives, this will be one for sure they will be monitoring closes to reduce in the future.
Corporate Tax: Businesses, particularly large corporations, could face higher taxes. This might impact job creation and investment within the UK. Higher corporation tax can force larger companies to shift their operation elsewhere.
Capital Gains and Inheritance Tax: Labour governments often propose higher taxes on capital gains and inheritance. This can make having a financial adviser even more important to help guide you with the best strategy to mitigate this. The Capital Gains Tax allowance is already quite low however, as for inheritance tax, this is always one that is talked about to reduce the Nil Rate Bands. The current Inheritance tax allowance is the following
For more information on the exact rates and how the taper works, the UK government website can be a great place to read and familiarise yourself with this. Speaking to a financial adviser can guide you on how to structure your estate in the most efficient way.
The impact of a Labour government on your finances will depend on your individual circumstances, such as your income level, employment status, and lifestyle. While higher taxes on the wealthy and businesses might concern some, the benefits of improved public services, stronger workers' rights, and more equitable economic policies can provide benefits from those on the lower end. The key is to have a plan in place to be able to adapt to any changes that could impact your current situation. Speaking with a financial adviser can guide you through this process and help you adapt to any legislative or market changes that could occur.
