General election: will taxes go up?
After months of mounting speculation, the date is set: Britain will be going to the polls on 4 July.
While we don’t yet know who will form the next government, there is one thing most voters seem certain about: taxes will go up, regardless of which party wins.
That’s what pollsters Ipsos recently found – interestingly, after both Labour and the Conservatives ruled out increasing income tax, national insurance, and VAT.
And, even if the politicians keep their promises, voters could be right to expect their wallets to feel the squeeze.
A hidden 4p hike in income tax?
Since 2021/22, the tax-free personal allowance and higher-rate tax threshold have been frozen, rather than rising in line with inflation. This has already pushed an extra 1 million people into paying higher rate tax and cut the real value of tax-free income by almost £3,000.
Because your income tax band determines the rate of capital gains tax (CGT) you pay, the income tax squeeze also costs you more elsewhere.
And there seems to be no sign of a thaw on the horizon, with both Labour and the Conservatives expected to leave thresholds and allowances unchanged after the election.
By 2027/28, it’s estimated the freeze will effectively raise as much for HMRC as a 4p hike in income tax.
As the tax take notches higher, making the most of any tax breaks whilst they are still available could be especially important.
Important: The information on this website is for experienced investors. It is not advice, research, nor personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. These investments are high risk and illiquid and can fall as well as rise in value: you could lose all the money you invest. Pensions are long-term investment and you cannot normally access your funds before age 55 (57 from 2028).
What tax reliefs could be available for experienced investors?
If you are eligible, contributing to a pension offers some of the most generous tax reliefs– including up to 45% tax relief on the way in and tax-free growth while you’re invested (you can read more in our article: Pensions: the most generous tax relief around?).
Maximising your ISA subscriptions can also be highly tax efficient, potentially shielding you from tax on UK dividends, interest, and capital gains on investments within the wrapper.
Two ready-made options for your ISA
The Wealth Club Portfolio Service offers five portfolios designed to provide experienced investors with a best-value, sensible long-term home for their wealth. They are the type of portfolio a private bank or wealth manager might build for you – but without the hefty price tag. In fact, you could pay around 40% less than you would if you used an adviser, and roughly the same as managing a typical fund portfolio yourself on a DIY platform.
The Quality Shares Portfolio, managed by Wealth Club Head of Equities Charlie Huggins, is specifically designed for people who are genuinely interested in investing. It invests in 15-20 global listed businesses chosen by Charlie for their resilience, financial strength and pricing power. As an investor, you receive an unparalleled level of information, insight and transparency.
But if you’re an experienced investor comfortable with investment risk, once you’ve maximised your pension and ISA contributions you could consider investing in British startups via the government-backed Venture Capital Schemes.
In return for taking the risk of backing ambitious young businesses, Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS), and Seed Enterprise Investment Scheme (SEIS) could let you claim back some of the amount you invest from your tax bill. You could even claim back tax you’ve already paid. What’s more, if your investment increases in value, the growth could be free of CGT.
The generosity of the tax reliefs is connected to how much risk you take. For backing the smallest (and highest risk) companies under SEIS, you could claim up to 50% of the amount you invest off your income tax bill. You could also claim up to 50% CGT reinvestment relief on a gain made elsewhere.
You can read more about the different schemes and their tax treatment below.
Please remember that tax benefits depend on your circumstances and the rules can change. This is a brief outline: there are detailed conditions and rules you should consider carefully before investing. Decisions should be based on the investment merit and not the tax reliefs alone. If you are unsure, you should seek advice.
VCTs
- Up to 30% income tax relief
- Tax-free dividends
- You can invest up to £200k per tax year
- Tax relief available in the tax year you invest
- You must hold the investment for at least five years
EIS
- Up to 30% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Capital gains tax deferral on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £2 million per tax year (if including knowledge-intensive EIS)
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
SEIS
- Up to 50% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill
- Up to 50% capital gains reinvestment relief on gains made elsewhere
- Loss relief
- Inheritance tax relief (when held at least two years and upon death)
- You can invest up to £200k per tax year
- You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer
Free guide: VCT, EIS and SEIS tax reliefs compared
For more information please read our simple guide – it gives an overview of the differences between VCTs, EIS and SEIS and how the tax reliefs compare.
If you have any questions on the guide or another investment matter, please get in touch.
You can email us or call us on 0117 929 0511. We're open from 9am to 5.30pm Monday to Friday.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.