The Liberal Democrat party has pledged to scrap the capital gains tax allowance in a bid to make the tax system “fair to all”.
The party's manifesto — published yesterday (November 20) — proposed abolishing any tax-free allowance on income from capital gains and instead merging the allowances of capital gains and salaries.
It stated: "We will tax income from capital 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."
This was to “ensure that income earned from wealth is not privileged when compared to income from employment”, the manifesto stated.
Currently consumers get £12,000 of profit tax-free from capital gains and a £12,500 personal allowance of tax-free income. There is no detail on what the new merged allowance would be.
The party also plans to raise £7bn per year in additional revenue by adding 1p on the basic, higher and additional rates of income tax. According to the manifesto, this money would be ringfenced for mental health services, the NHS and social care.
The manifesto stated: “Labour and the Conservatives are looking to the past for answers that will not work today.
“Labour want to hike up income tax in a way that will not even ensure that more tax is paid; the Conservatives have no interest in making the taxation system fairer.”
Other tax shake ups proposed by the Lib Dems included taking “tough action” against corporate tax evasion and avoidance, especially by international tech giants and large monopolies.
The party also pledged to end retrospective tax changes like the controversial loan charge so that individuals and firms are “treated fairly”, as well as review the recent proposals to change the IR35 rules.
The loan charge hit headlines recently after HMRC reported itself to the police watchdog over deaths relating to the charge, while the extent of business anxiety about the changes to IR35 led the Association of Independent Professionals and the Self-Employed to call for the next government to ‘pause’ the incoming legislation.
The party stuck by its previous pledge to help women born in the 1950s who were the first to be affected by a sharp rise in the state pension age as it promised to ensure Waspi women were “properly compensated for the failure of government to properly notify them of changes to the state pension age”.
The Lib Dems also said introducing a cap on the cost of care would be a “key starting point” for the party, as well as funnelling more funds into social care services to “relieve the crisis”.
Rachael Griffin, tax and financial planning expert at Quilter, said: “A care cap has been bandied about by politicians for years.
“The issue is how to make a simple cap that is sustainable and with the manifesto light on detail it’s difficult to see if the Lib Dems have actually found a solution to that.”
The issue surrounding NHS pensions also featured in the Lib Dem’s pledge list. The party said it would “listen and act” on the pensions crisis that was “driving away our most experienced clinicians and worsening waiting times and the workforce crisis."
The party did not outline further details on its plans in this area.
It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds, most likely because of the taper on the annual allowance.
Introduced in 2016, the tapered annual allowance gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
This week the government introduced emergency measures to stop doctors from cutting their hours to avoid pension tax, saying it would cover the cost of any tax bills in the 2019/20 financial year.
Tom Selby, senior analyst at AJ Bell, said: “Although political parties acknowledging the pension tax regime is exacerbating strains in the NHS is good news, nobody seems willing to back the obvious solution – namely scrapping the annual taper altogether. This is somewhat perplexing.
“It may be that the major parties simply don’t like the electoral optics of removing something which places an extra tax burden on higher earners. But with patients’ lives potentially being put at risk, we need politicians to show real leadership in this area.”
The Lib Dems also proposed more regulation in financial services to encourage green investments.
This included requirements on pension funds and managers to show their portfolio investments were consistent with the Paris Agreement alongside new powers for regulators to act if banks and other investors were not managing climate risks properly.
Earlier this week the Green Party pledged a radical overhaul of the tax system while offering a number of pensions solutions.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
