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What the general election could mean for your personal finances

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30/10/2019
Our experts discuss how the historic December election may affect income tax, stamp duty, inheritance tax, interest rates and pensions.

Britain is gearing up for the most significant general election in 40 years after Boris Johnson last night won his fourth attempt to go to the polls.

MPs overwhelmingly voted in favour of the election, which is set to take place on 12 December.

But what might the pre-Christmas vote mean for the pound in your pocket?

Income tax

One of Boris Johnson’s main campaign pledges was increasing the point at which the 40% income tax rate kicks in from £50,000 to £80,000.

“The move would affect around four million people, and the highest earners in that group would get an extra £2,500 in their back pocket each year,” says Laura Suter, personal finance analyst at AJ Bell.

Labour also pledged to change the income tax system – but in the other direction. Shadow chancellor John McDonnell wants to reduce the reduce the 45% additional rate threshold from £150,000 to £80,000.

Property

Boris Johnson has talked about cutting stamp duty on all homes worth £500,000 or less in a bid to stimulate the property market.

Suter says: “First-time buyers already get a stamp duty break as they pay nothing on the first £300,000 if they buy a property worth £500,000 or less. But Boris’s plan is to extend this to all buyers and increase the tax-free limit to £500,000. The move would save first-time buyers up to £5,000 and all other homeowners up to £15,000.”

A report backed by Labour leader Jeremy Corbyn unveiled an even more radical plan – scrapping stamp duty for homes people will live in themselves and scrapping council tax and replacing it with a new ‘progressive property tax’, based on property values, which would be payable by landlords rather than tenants. Capital gains tax for second home or investment properties would also be increased.

Inheritance tax

Labour has pledged to scrap the current inheritance tax system and instead cap the amount everyone can receive in inheritance in their lifetime at £125,000. Any gifts received above this would be taxed at income tax rates.

Suter says: “New Chancellor Sajid Javid has already said he is a fan of simplified taxes, and as the Government has already commissioned the Office for Tax Simplification to carry out a review of IHT simplification, it seems a likely area of focus.

“Among the OTS’ suggestions are scrapping the seven-year taper, simplifying the annual gifting allowances into one, and scrapping certain other allowances.”

Interest rates

The path of interest rates has been unclear for some time, making it tricky for savers and homeowners to know what to do.

“So much is dependent on how Brexit pans out and how the current political situation concludes. Broadly speaking a messy Brexit or a Labour majority are likely to lead to more uncertainty in markets and the economy, which could mean the Bank has to cut rates. Likewise, a better-than-expected Brexit conclusion could see the economy and markets rally, meaning a rate rise is more likely,” says Suter.

Pensions

Tom Selby, a senior analyst at AJ Bell, says pensions are likely to take a central role in the campaign as both sides vie for the so-called ‘grey’ vote.

The triple-lock, which guarantees the state pension rises each year in line with the highest of average earnings, inflation or 2.5%, could be a focus for all sides.

Selby says: “Labour’s 2017 manifesto committed to retaining the triple-lock for the next Parliament and the party is widely expected to retain this position as part of a big offer to older generations.

“The Liberal Democrats have gone further, suggesting the triple-lock should become a permanent feature of the state retirement system.

“For its part, the Conservative’s 2017 manifesto suggested the UK should move to a state pension ‘double-lock’ linked to the highest of average earnings or inflation.”

As voters head to the polls, it’s likely all parties will vow to protect the triple lock so as not to upset older generations.

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