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Party plans: how the election will shape tax and pensions

We run through some of the major areas of the tax and pension regime and look at what each party has proposed.

With just over two weeks to go until the general election, the main parties have outlined their plans for tax and pensions in their manifestos.

From an overhaul of non-dom rules to cutting pension tax relief, the proposals could give planners plenty to think about. We run through some of the major areas of the tax and pension regime and look at what each party has proposed.

We run through some of the major areas of the tax and pension regime and look at what each party has proposed.

With just over two weeks to go until the general election, the main parties have outlined their plans for tax and pensions in their manifestos.

From an overhaul of non-dom rules to cutting pension tax relief, the proposals could give planners plenty to think about. We run through some of the major areas of the tax and pension regime and look at what each party has proposed.

We run through some of the major areas of the tax and pension regime and look at what each party has proposed.

Inheritance tax

The Tories’ big ticket policy is the pledge to take the family home out of reach of inheritance tax (IHT). Currently each individual has a personal IHT allowance of £325,000, amounting to a combined allowance of £650,000 for spouses. IHT of 40% applies to the value of estates above this amount.

David Cameron’s (pictured) party wants to create an extra tax-free band worth £175,000, a combined £350,000 for spouses, which would apply to main residences. This would bring the total nil-rate band available on a property to £1 million.

So far so Conservative, but the party has caused controversy by planning to fund this policy by cutting pension relief for additional rate tax payers.

The Labour party has been strangely quiet on this front, with no mention of IHT in its manifesto. A spokesman said it would outline plans in its first Budget, if elected...

Inheritance tax continued

Likewise the Liberal Democrats have made no mention of IHT in their manifesto but, having blocked Tory plans to raise the nil-rate band to £1 million while in coalition, it is fairly clear where the party stands.

Ukip has proposed to abolish IHT by 2020. It has estimated this would cost £5.5 billion in 2020 but has not explained how it would be funded.

Rivalling Ukip in its radicalism, the Greens have set out plans to ‘fundamentally reform IHT and turn it into an accessions tax’. Under the party’s plans, the level of IHT paid would depend on the wealth of the recipient, not the donor, and bequests to individual recipients who have less than £200,000 would be tax.

Income tax

The Tories have committed to no increases in income tax or national insurance. They also pledged to increase the tax-free personal allowance to £12,500 and the higher rate threshold to £50,000.

Labour leader Ed Miliband (pictured) has said the party would not increase the basic or higher rates of income tax or national insurance. He also promised to introduce a lower 10p starting rate of tax, paid for by ending the Conservatives’ marriage tax allowance, and to bring back a 50p top rate of income tax for those earning more than £150,000...

Income tax continued

The Liberal Democrats have said they will raise the income tax threshold to at least £12,500, and are annoyed that their so-called coalition partners have stolen this sure-fire vote winner. They also want to increase the tax that higher and additional rate earners pay on dividends by 5%, in an effort to target company directors who pay themselves in dividends rather than salary.

Branding itself a ‘low-tax party’, Ukip has said it would increase the personal allowance to £13,000 by 2020. It has also proposed a new 30% income tax band to be paid by those earning more than £55,000.

While Ukip wants to cut, the Greens want to hike. The party has set out plans to raise the additional rate of income tax, currently 45% for earnings over £150,000, to 60%.

Pension tax relief

The Tories ruffled a few feathers with their proposal to reduce pension tax relief for people earning more than £150,000 to fund their IHT property plan. The cut would mean additional rate tax payers could only receive full relief on £10,000 of pension contributions per year rather than the £40,000 they currently enjoy.

Labour is also targeting additional rate pension tax relief, proposing to reduce the amount savers can claim from 45% to 20%. This would fund a proposed cut in tuition fees. Labour has also said it would reduce the annual allowance to £30,000.

Pension minister and Liberal Democrat Steve Webb (pictured) is a firm proponent of a flat rate of tax relief and has suggested this could be set at around 33%. The party has not fully endorsed Webb’s proposals but has committed to review an introduction of a flat rate of relief.

No half measures here: the Greens want to abolish pension tax relief and use the £20 billion they think this would raise to fund a £180-a-week flat-rate state pension.

Non-doms

The Tories have not committed to any alterations to the non-domiciled status, although were reported to be considering changing the rules to stop it being possible for non-dom status to be inherited.

Labour leader Ed Miliband has promised to abolish the current non-dom status tax rules, which exempt non-dom UK residents from paying tax on income earned outside the UK. The party has claimed this would raise ‘hundreds of millions of pounds’ but has faced criticism that the move could result in lost tax revenues if non-doms move overseas.

Chief secretary to the Treasury and Lib Dem lapdog Danny Alexander said the party would raise an additional £130 million through a crackdown on non-dom eligibility rules but not go as far as scrapping the rules. This would mean non-dom status could not be inherited.

Greens leader Natalie Bennett (pictured) and Labour’s Ed Miliband are on the same page: the Greens have also promised to scrap non-dom status.

Retirement market

Without stating how, the Tories have pledged that the Financial Conduct Authority will ‘protect consumers and ensure that financial markets work for the benefit of the whole economy’.

Labour has promised a review of the pensions market to protect consumers, who now have greater flexibility following the pension reforms implemented earlier this month. It has said it will publish a report after the election.

The Lib Dems said they would ‘press ahead’ with plans to allow people more freedom in the use of their pension pots. No specifics were given.

A win here for Nigel Farage (pictured) and Ukip, which gave the most detail about how they would protect pensioners from losing all their savings. The party’s manifesto attacked the 45 minutes of guidance provided by Pension Wise as ‘completely inadequate’ and promised to fund a higher standard of independent guidance for savers.

The party also pledged that a pensions advice and seminar programme would be made available to all pensioners to protect their best interests, and unregulated firms making cold calls to pensioners could face criminal charges.

Pensioner benefits

The Tories maintained their commitment to the state pension triple-lock guarantee, which means it would rise by the highest of inflation, earnings or 2.5%, and promised not to touch benefits such as the winter fuel allowance, free bus passes, free prescriptions and television licences.

Labour, meanwhile, will not be so generous. The party plans to stop paying winter fuel payments to the richest 5% of pensioners. It would, however, keep the triple lock but has not ruled out a further rise in the state pension age.

Like their Tory counterparts, the Lib Dems will keep the triple-lock guarantee if they win power. Party leader Nick Clegg (pictured) promised bus passes for pensioners would remain, but the winter fuel payment and free TV licences would be scrapped for pensioners on the 40% income tax rate.

Ukip has proposed a flexible state pension ‘window’, which would allow pensioners to draw a lower state pension earlier than state pension age.

The Greens want a £180-per-week state pension for all pensioners, regardless of national insurance contributions. It would be funded by abolishing pension tax relief. The party has also prioritised keeping the pensioner bus pass, winter fuel allowance and free prescriptions.

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