The Liberal Democrats launched their election manifesto on Wednesday April 15th. Key tax proposals include a commitment to raise the personal allowance to £12,500; a High Value Property Levy on homes worth over £2million and a new corporation tax on the banking sector which aims to raise £1 billion per year.
These are the party’s pledges by area of tax:
Income tax / national insurance
The Liberal Democrats wish to ‘cut taxes for working people’ by raising the tax-free allowance to £12,500. As a stepping stone to this increase, they will bring forward the planned increase to an £11,000 allowance to April 2016.
Once they have delivered the rise in the personal allowance, they will raise the employee National Insurance threshold to the Income Tax threshold, as resources allow, while protecting low earners’ ability to accrue pension and benefit entitlements.
The party will also abolish employee shareholder status (‘shares for rights’) that offers employees who have sacrificed their employment rights, income tax relief and capital gains tax exemptions on shares they own in their company.
Pensions and tax
The Lib Dems would establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and which would be set more generously than the current 20% basic rate relief.
The party intend to withdraw eligibility for the Winter Fuel Payment and free TV Licence from pensioners who pay tax at the higher rate (40%).
The Liberal Democrats remain committed to introducing a Land Value Tax (LVT), which would replace Business Rates in the longer term and could enable the reduction or abolition of other taxes. They will extend the Business Rates review to ensure it considers the implementation of LVT, as well as interim reforms like Site Value Rating that could be completed within five years.
They will introduce a banded High Value Property Levy in 2017-18. The Liberal Democrats will consult on the implementation of this levy. The party would guarantee that for properties valued at between £2m and £2.5m the charge would be £2,000 per year or less. For £2.5m and £3m the charge would be £3,500 per year or less, for properties between £3m and £4m the charge would be £5,000 per year or less and for properties between £4m and £5m the charge would be £9,000 per year or less.
The party is proposing a Council Tax discount for significant improvements in energy efficiency in homes. The party is also aiming to cut council tax by £100 for 10 years if you insulate your home, and ban landlords from letting out homes tenants cannot reasonably afford to heat. The party will levy up to 200% Council Tax on second homes where they judge this to be appropriate. They will remove the requirement to hold local referenda for Council Tax changes, ensuring Councillors are properly accountable for their decisions by introducing fair votes.
They will establish a voluntary register of rented property where either the landlord or the tenant can register the property, to improve enforcement and tax transparency.
Capital gains tax / investment income
The party will reduce the annual exempt amount for Capital Gains Tax to £2,500, however they will allow people to transfer unused elements of their Income Tax Personal Allowance to offset against CGT liabilities.
The party will restrict entrepreneurs’ relief to those who have had shareholdings of at least 10% within the last three years and 5% in the last year. This will ensure that entrepreneurs’ relief continues to benefit genuine entrepreneurs but isn’t open to abuse.
They will raise the rate of dividend tax by 5% for higher and additional rate taxpayers to more closely align them with marginal income tax rates.
Families, tax credits & low earners
The party will complete the introduction of Tax-Free Childcare, which will provide up to £2,000 of childcare support for each child and include childcare support in Universal Credit, refunding 85% of childcare costs so work pays for low earners.
They will abolish the transferable tax allowance for married couples and civil partners introduced in April 2015, stating that it unfairly discriminates against unmarried couples.
The Liberal Democrats will continue to reform business tax to ensure it stays competitive, making small and medium-sized enterprises the priority for any business tax cuts. They will work to adjust the tax system away from subsidy of high leverage debt and tackle the bias against equity investment.
The party will continue the banking levy and introduce a time-limited 8% supplementary corporation tax charge on banks operating in the UK to ensure banks continue to make a fair contribution to fiscal consolidation.
Their manifesto also states that they will ask the Bank of England’s Financial Policy Committee to consider the approach to paying tax taken by banks for themselves, their employees and for their customers, as part of their assessment of the risks posed by the sector, supported by an annual report by HMRC.
They will introduce a tax levy on tobacco companies so they fairly contribute to the costs of health care and smoking cessation services, subject to consultation on the detailed design and practicalities.
The party is intending to lead international action to ensure global companies pay fair taxes in the developing countries in which they operate, including tightening anti-tax haven rules and requiring large companies to publish their tax payments and profits for each country in which they operate.
The Liberal Democrats are committed to improving tax transparency including in low-income countries by extending country-by-country reporting from banks and extractive industries to all UK listed companies.
On corporation tax, they will limit interest deductibility; they are intending to lead from the front in implementing the rules coming out of the OECD’s work on Base Erosion and Profit Shifting. Within this work is a policy to limit the amount of debt interest that can be offset against a company’s Corporation Tax liability. The OECD work on this strand is due to complete in the autumn of 2015 and they will implement, as soon as possible thereafter.
Avoidance and evasion
The party is aiming to bring in £6bn extra a year from a further crack down on tax avoidance.
The Lib Dems would extend the loss relief rules that the coalition applied to banks operating in the UK in the 2014 Autumn Statement.
The party will increase charges on Non Domiciled Residents so that people who have been resident in the UK for 7 of the past 9 years will see a rise from £30,000 to £50,000. People who have been resident in the UK for 12 of the past 14 years will see a rise from £60,000 to £100,000, and those who have been resident in the UK for 17 of the past 20 years will see a rise from £90,000 to £150,000.
The party will introduce a general anti-avoidance rule which would outlaw contrived structures designed purely or largely to avoid tax.
The party will implement the planned new offence of corporate failure to prevent economic crime, including tax evasion, with penalties for directors up to and including custodial sentences. They will also levy penalties on firms proven to facilitate tax evasion, equivalent to the amount of tax evaded by their clients.
Green taxes & Environment
The Liberal Democrats will implement targeted green taxes to discourage pollution and reward sustainability with a long-term view to increase the proportion of tax revenue accounted for by green taxes.
There would be a programme of tax incentives and public investment for the energy efficiency sector. 50% of any tax revenues from shale gas would go into a Low-Carbon Transition Fund to fund energy efficiency, community energy, low-carbon innovation and renewable heat.
The party is committed to establishing a coherent tax and regulatory framework for landfill, incineration and waste collection to drive continuous increases in reuse and recycling rates and ensure only non-recyclable waste is incinerated, including reinstating the Landfill Tax escalator and extending it to the lower rate and consulting on the introduction of an incineration tax.
The party will commission a new Natural Capital Committee to investigate the potential for other resource taxes, including deposit refund schemes.
The party has stated that it intends to work with the automotive industry to re-band Vehicle Excise Duty in order to return revenues to those projected in 2010. This work would be subject to consultation, however we will continue to incentivise the purchasing and running of lower emission cars.
The Liberal Democrats are committed to enabling the devolution of Corporation Tax to Northern Ireland by April 2017. They will continue to work with all parties to implement the full package of measures in the Stormont House Agreement and address outstanding issues. They will seek to build on this progress by keeping under review the prospect of further devolution of fiscal powers to the Northern Ireland Assembly and other powers that would improve the financial accountability of the Assembly.
The party has stated that the Scottish Parliament should raise in tax more than half of what it spends in its budget. A Scottish welfare system should allow the Scottish Parliament to change the benefits regime where there is specific Scottish need or priority, with a starting budget of around £3 billion.
The Liberal Democrats will deliver ‘proper’ Home Rule for Wales and a Welsh Parliament by implementing the remaining Silk proposals on financial powers for Wales. They are to consider the work of the Government’s review on devolution of Air Passenger Duty (APD), with a view to devolving long-haul APD.
HMRC and the tax system
The party would set a target for HM Revenue and Customs to reduce the tax gap and continue to invest in staff to enable them to meet it.
For further information see
Liberal Democrat Manifesto 2015
Analysis of other party manifestos will follow.
The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.
CIOT External Relations Officer
Friday 17 April 2015