In the run up to the election, the Liberal Democrats and the Scottish National Party are routinely asked about what they would do in the event of a hung parliament. Both have expressly ruled out a formal coalition but there are other ways that smaller parties can help prop up a government, such as through a confidence-and-supply agreement.
Where the tax policies of the Liberal Democrats or the SNP chime with those of one of the larger parties, there is the chance that a future deal between them could mean that those policies become law.
Liberal Democrats
By far the more detailed tax policy proposals of the two parties are those put forward by the Liberal Democrats, whose election manifesto was published on 20 November.
One of the party's most striking policies is to reform the distinction between the tax treatment of income and that of capital profit. This idea was first introduced by the previous leader, Vince Cable, at the 2018 party conference. That proposal would have seen capital gains being taxed through the income tax system and the abolition of the reduced income tax rate applicable to dividends. This would go far beyond their previous policy of simply reversing Conservative cuts to capital gains tax ('CGT') rates. However, the 2019 manifesto is rather more ambiguous. It promises to tax capital gains 'more fairly' compared to income from work, 'by abolishing the separate capital gains tax-free allowance and instead taxing capital gains and salaries through a single allowance'. Party manifestos often lack important details on tax policy and this is no exception. The proposal to tax capital 'more fairly' as compared with income appears to fall short of taxing the two equally but, in any event, the manifesto maintains the Liberal Democrats' commitment to progressive reform of CGT.
Until the publication of the 2019 election manifesto, the Liberal Democrats had mirrored the Labour party in their proposed abolition of inheritance tax, which they would replace with a new lifetime gift tax under the Liberal Democrat version, individuals would have a lifetime tax-free allowance of £250,000 as a recipient, above which gifts would be taxed in the hands of the donee at income tax rates. One small concession (besides charity and spouse exemption) was a proposed exemption for spending on children's education. Reforms to reliefs such as business property relief, which currently removes the burden of inheritance tax from property used in a business, were also envisaged. These changes would include increasing the minimum periods during which the property must be owned in order to qualify for relief and granting HMRC greater powers to claw back tax where property is sold 'too quickly' after transfer. The 2019 election manifesto happens to be silent on inheritance tax, although it seems unlikely that these plans have been jettisoned outright.
Another point of consonance with the Labour party worth considering is reform to business rates. The manifesto confirms the Liberal Democrats' plan to scrap the business rates system, replacing it with a 'commercial landowner levy'. The tax would be paid by the owners of land, rather than their tenants, and would be calculated based on the value of the land only, excluding the buildings or machinery which may be situated upon it. According to the report in which the Liberal Democrats first proposed the policy, unused and derelict commercial land would also fall within the scope of the tax. This appears to be substantially the same policy as the land value tax proposed in 'Land for the Many' and indicates that there is plenty of appetite to reform the business rates system through an increase in the tax burden on landowners.
But the Liberal Democrats and Labour do differ on tax in some respects. In contrast to Labour's planned significant increases in income tax rates, the Liberal Democrats have proposed only a modest 1% rise in order to fund more spending on the NHS and social care. Furthermore, their plan to restore corporation tax to 20% (from the current 19%) falls far below Labour's proposed increase.
Further proposals which feature in the Liberal Democrat election manifesto include targeting international tech giants who engage in profit shifting, increasing the stamp duty land tax surcharge on property purchases by overseas residents and allowing local authorities to subject owners of second properties to council tax at up to 500%.
SNP
The effect on the tax regime of the SNP holding the balance of power is less clear. Many UK taxes are not devolved and so the SNP's messaging more commonly involves advocating for further devolution of taxes than for any particular reform. In this election, the leader Nicola Sturgeon is primarily pushing for a second independence referendum for Scotland and has said she would be willing to prop up a Labour government on an 'issue by issue basis' to achieve it.
The SNP generally holds itself out as favouring a progressive tax policy. It currently has the ability to set the Scottish Rate of Income Tax and the bands at which the rates apply, and last year froze the level at which the higher rate kicks in rather than allowing it to increase with inflation. The party has called for the devolution of inheritance tax, with a spokesperson deeming the system 'not fit for purpose'. In its 2017 manifesto, the SNP also supported the introduction of a tax on bankers' bonuses. Such proposals clearly chime with the mood of the current Labour party and it may be fair to extrapolate from this that, should the SNP prop up a Labour government, we could expect a higher tax levy to fall on the wealthy and the highly paid as a result.
We expect the publication of the rest of the parties' manifestos imminently and will update you with our analysis of their contents as they come in.
If you have any questions regarding the UK General Election 2019, please contact your usual Withers contact. You may also wish to view our dedicated webpage which will be updated regularly before Thursday 12 December, click here to view it.
