What the Lib Dem manifesto means for investors and savers

The Liberal Democrats have released their manifesto. Despite leader Ed Davey not being able to become the Prime Minister himself, their policies could impact the course other political parties pursue as the party is projected to gain a greater number of seats.

Investors' Chronicle guides you through all the essential information you need.

Lib Dem Stance On Tax

The Liberal Democrats have promised to make changes to the capital gains tax in a way that they believe will bring in an extra £5.2bn. They want to ensure that the reform is fair. (More information can be found below.)

The Lib Dem's plan, as stated in their manifesto, is to provide the British people with a fair deal that is both bold and ambitious. The spending pledges stated in their plan amounts to £27bn and it will be financed through a set of actions that involves improving capital gains tax, a reversal of tax cuts given to banks and tightening up measures against tax avoidance and evasion. These figures were released on Monday.

The political group promised to handle the government's money very carefully and responsibly. Additionally, they stated that all financial decisions would come with predictions from the OBR fiscal advisor. The Liberal Democrats mentioned that their main focus for reducing taxes would be increasing the amount individuals are allowed to earn before being taxed, as long as it doesn't negatively impact the country's budget. HT

Taxing Investors: The Liberal Democrats' Approach

The party put forward several suggestions, including taxes on FTSE 100 buybacks and increased taxes for oil and gas companies. They also recommended raising the salaries of a large number of UK residents who currently earn minimum wage or close to it, in addition to constructing a greater number of houses.

The political party suggested a 4% buyback tax as a way to encourage beneficial investments, employment opportunities, and economic improvements. Additionally, they proposed that the upcoming government should increase the banking profit surcharge from 3% to 8%.

The Liberal Democrats have promised to make sure that 380,000 fresh houses are created annually, 150,000 of which must be for social housing. They intend to construct ten brand new garden cities and encourage the building of houses on brownfield sites. Furthermore, they plan to impose 'use it or lose it' planning regulations on developers to prevent them from holding onto unused land.

According to Anthony Codling, an expert with RBC Capital Markets, the party's plans for housing are the most ambitious we've seen from any political party. At the moment, the government aims to build 300,000 new homes each year, but this hasn't been happening. Over the past two decades, an average of 190,000 homes per year were built, although this increased to 234,000 in 2022-23.

While the emphasis on the housing industry is appreciated, some housebuilders may worry about the new regulations. The mandate that all new houses must conform to a zero-carbon protocol and the "use-it-or-lose-it" rule may be particularly troubling for those with significant amounts of land, such as Berkeley (BKG), Persimmon (PSN), and Taylor Wimpey (TW), Codling noted. MF

The UK government plans to introduce a fresh industrial strategy with a main focus on the skills that will prove valuable in the future, including the areas of alternative energy, technology, and biosciences. Additionally, they aim to resolve the persistent issues surrounding defence procurement.

A new council called the Industrial Strategy Council would be responsible for supervising it and would have the authority to enforce it. Listed companies would promote employee ownership by granting workers the ability to demand shares.

The political organization is advocating for the expansion of public interest evaluations in cases where foreign entities attempt to acquire "large or strategically significant" British enterprises.

"Producers In Oil And Gas Industry"

In the manifesto, the Liberal Democrats proposed a windfall tax on the extra profits oil and gas producers and traders make. The North Sea producers have already decreased their investments because of the windfall tax that the government introduced two years ago, which led to a decrease in profits due to lower gas and oil prices. Through a one-off tax, the companies will be free from longer-term uncertainty and have a clearer picture of their future. However, the Liberal Democrats have not disclosed how much this tax might be for these companies. The ability to access the profits of the biggest trading firms also remains unclear. Vitol's UK arm, Vitol Broking, revealed that it made sales worth £1.5bn in 2022, and after a profit of £312m, its tax bill was £61m. Glencore (GLEN), registered in Jersey, mainly operates its trading activities out of Switzerland.

The chief of the Institute for Fiscal Studies think tank, Paul Johnson, cautioned about potential dangers that the actions taken might not achieve their expected outcomes. He highlighted that imposing taxes on financial institutions, technological corporations, and energy companies could have adverse effects and should not be taken lightly. He also noted that the current tax levies on companies are already at an all-time high in comparison to previous decades.

Impact Of Liberal Democrat Proposals On Savers

The Liberal Democrats have put forth a proposal in their election manifesto to raise the rates of capital gains tax (CGT). This would generate a yearly sum of £5.2 billion to promote the National Health Service.

According to the plan, CGT would be charged at a rate of 20% for profits up to £50,000, at 40% for profits between £50,000 and £100,000, and at a rate of 45% for profits over £100,000, following the same rates of income tax.

At the moment, the current system adds up income and capital gains to determine the tax rate, but the new proposal suggests that tax should only be based on gains. This means that higher earners would pay a 20 per cent tax on any gains made from assets, except if it's related to residential property which would be taxed at 24 per cent.

The Liberal Democrats intend to boost the Capital Gains Tax (CGT) allowance from £3,000 to £5,000 and establish an inflation allowance. This would mean that any profits earned from inflation would not be taxed. According to the party, most people are paying excessively high taxes when they sell a few shares or a property as the current system fails to consider inflation over the period of ownership. The proposal also aims to target wealthy individuals who use the existing CGT system to circumvent paying the same income tax rates as everyone else.

Dan Neidle, who advocates for fair taxation and practices law, found the idea to be reasonable. However, he pointed out that the projected budget may not be attainable. The reason being, informing the public of a planned rise in capital gains tax often prompts individuals to take action and cash in on their gains before the increase takes effect. As a result, this may reduce the expected financial gain from the tax increase.

The Liberal Democrat manifesto also highlighted the importance of increasing the personal allowance as a crucial aspect of tax reductions "once the economic situation allows", and they promised to uphold the triple lock for the state pension.