The Labour Party Fiscal Policy

The Labour Party’s Fiscal Plan was recently announced and, of course, being a Chartered Accountant, I was naturally drawn to their tax policy. Now, tax policy by itself, won’t hang a government or hand the reins of power to a new government, but it is surprising how heated some people can get about tax policy and there will be plenty of arguments aired from either side of the centre line as we head towards the election.

As much as I might like to think my opinion will decide the next government, unless I can persuade the other 3.07 million voters to my way of thinking, I won’t physically be able to control fiscal policy. So, let’s attempt to explain what will happen under Labour’s current fiscal plan.

First, the ‘elephant in the room’ – Capital Gains Tax (CGT). There is already a form of CGT existing for taxpayers who enter business arrangements with a view to capital profits but it doesn’t go as far as this policy. CGT will be taxed at a flat rate of 15% on net gains and there will be exemptions for the family home, personal assets and small business assets. However, the family farm, share portfolios (including shares in family farm companies) and other business interests will be caught. Only gains in value from the date of implementation will be caught and then only taxed on realisation of the asset – usually the point of sale. Capital losses (yes you will be allowed these) are carried forward to offset against future capital gains.

The top personal tax rate will lift from 33 cents in the dollar to 36 cents in the dollar for income over $150,000. Currently, income over $70,000 is taxed at the highest tax rate so it would appear that some recognition of the fact that this income level is no longer solely representative of the ‘most wealthy’ has occurred.

The trust tax rate will also increase from 33% to 36%, in line with individual tax rates. This makes sense as trusts, in the early days, were tools to avoid the higher progressive tax rates.

Landlords are also personally affected. Losses generated from rental investments would be ‘ring fenced’. This means that you would not be able to offset your rental losses against your other sources of income. Instead, rental losses are carried forward to offset against future rental income.This change, combined with the establishing of a CGT will have a major impact on property investors.

Que Sera Sera (whatever will be, will be). If this is policy from 1st April 2015, so be it – I will simply factor these into my decision making process for my business and personal investments.

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