Which party’s pledges will REALLY boost your wealth?

( Need a clue? The answer is blue! )

MANIFESTOS rarely tell the whole story of what a political party intends to do if they come to power. Often the really nasty news is held back for the incoming Chancellor of the Exchequer to deliver at their inaugural Budget.

Yet judging by what we have seen already with our eyes and heard with our ears, there is no doubt that given a choice between a Government led by either ‘Red Under the Bed’ Jeremy Corbyn or Boris Johnson, there is one clear winner on the wealth front. Step forward Boris. Step back into the wilderness Jeremy.

While a Corbyn-led Government will hit our wealth with a series of punitive tax hikes and eye-watering haircuts to longstanding allowances – done to fund an £83billion spending spree – Johnson will be altogether kinder. He will uphold Conservative principles going back to Margaret Thatcher in the late 1970s and early 1980s, based on encouraging individuals to build wealth for themselves while keeping taxation to a minimum.

Last week, Wealth sat down with a panel of experts to discuss how kind or unfair the two main political parties will be towards our personal finances. Here is our verdict.

PERSONAL TAXES: FREEZE OR ASSAULT

LIKE much of their manifesto, the Conservatives have taken a somewhat defensive approach towards personal taxation. There are no grand promises, nor a nasty round of tax rises in the offing – unlike Labour.

So Johnson has committed to no rises in the rates of income tax, VAT or National Insurance while stating the earnings threshold at which NI contributions kick in will rise from £8,632 to £9,500 – from the start of the new tax year in April. The move will cut taxes for 31 million people.

Although the Conservatives have made no pledge on increasing the threshold at which higher rate (40 per cent) income tax kicks in – it currently stands at £50,000 – 600,000 fewer people are now paying 40 per cent tax than in the tax year beginning April 2018.

Labour has also promised not to raise VAT, but on income tax it intends to hit hard those earning more than £80,000 a year. Anyone earning above this will start paying income tax at 45 per cent while a new 50 per cent rate will apply to those with earnings above £125,000 – the so-called ‘super rich’ in Corbyn’s eyes.

While Labour says its plans are designed to extract more tax revenue from the top five per cent of earners, other proposed changes have wider impact – most notably the scrapping of the so-called marriage tax allowance.

Currently, this tax break allows a non-taxpayer who is married or in a civil partnership to transfer £1,250 – a tenth – of their personal allowance to their partner, provided they in turn are a basic rate taxpayer. By doing this the 20 per cent taxpayer can save £250 a year in tax.

One reader last week told Wealth that the scrapping of this allowance should be ‘exposed as a Labour assault on lower income families’. They added: ‘It should not be dismissed as of little significance as it will disadvantage around six million people.’ Wealth is glad to expose this assault.

Jason Hollands, a director of wealth manager Tilney, says the removal of the allowance is part of a Labour package of ‘significantly higher personal taxes for the many’ that includes increased taxes on dividend income and a ‘considerably more aggressive capital gains tax regime’ (see below).

Sarah Coles, personal finance analyst at fund platform Hargreaves Lansdown, says Labour’s scrapping of the marriage tax allowance should act as a call to arms for 700,000 couples who currently are eligible to take advantage of it, but don’t use it.

She says: ‘The claim for the allowance can be backdated four years which means a couple could benefit to the tune of £1,150. Given Labour’s plans, it’s a really good time to apply.’

Visit gov.uk/marriage-allowance.

INVESTING: DEVIL IS IN THE DETAIL

THE Conservatives have made no proposals to change the capital gains tax regime, suggesting continuity will be the order of the day.

In other words, it will still allow investors to shelter from tax up to £12,000 of profits a year made from share disposals – with tax on gains above this allowance levied at either 10 per cent (basic rate taxpayers) or 20 per cent (higher and additional rate taxpayers).

The only note of caution, according to Hollands, is that capital gains tax was excluded from the manifesto’s triple lock commitment not to raise income tax, VAT or National Insurance. This would give a future Chancellor of the Exchequer wriggle room to raise the tax on gains.

The same arguments apply to the annual dividend allowance that currently allows £2,000 of dividend income to be received outside of a pension or tax-friendly Isa without any tax to pay.

Above this limit, there is a tax charge of 7.5 per cent, 32.5 per cent or 38.1 per cent according to whether the investor is a basic, higher or additional rate taxpayer.

The Conservatives have not set out any changes. Equally, they haven’t made a commitment to maintain the status quo – which gives Chancellor Sajid Javid licence to hike up dividend tax rates if he feels the need.

Labour’s taxation plans for those who invest are draconian – ‘a significant hindrance to investing’, according to Hollands.

So, the capital gains tax allowance would be reduced to £1,000 with any gains above this level taxed at an investor’s highest marginal rate of income tax.

Similarly, the dividend allowance would be halved to £1,000 with any income above that level again taxed at income tax rates. Yes, you’ve guessed right. Less dividend income for you after Corbyn has taken his mighty bite.

Moira O’Neill, head of personal finance at wealth manager Interactive Investor, says these changes would be ‘painful’. She goes on to quantify the pain.

She says: ‘The average balance in our investors’ share portfolios, outside of Isas, is £48,897. If you assume their portfolio has performed in line with world stock markets over the past ten years, £32,398 of this sum is capital gain – on an original investment of £16,499.’

Doing the maths, O’Neill says a higher or additional rate taxpayer selling this portfolio today would end up with a capital gains tax bill of £4,080 – this is based on utilising the full £12,000 tax-free allowance, leaving £20,398 to be taxed at 20 per cent. In other words, their overall gain net of tax becomes £28,318.

Under Labour’s capital gains tax regime, and assuming the investor will become a 45 per taxpayer, the capital gain would trigger a tax bill of £14,129.

This reduces the investor’s gain net of tax to £18,269. A 50 per cent taxpayer would be left with gains of £16,699 after a tax bill of £15,699. Respective tax hikes of 246 per cent and 285 per cent. Frightening.

O’Neill says the only crumb of comfort that can be drawn from Labour’s assault on personal investing is that Isas seem exempt.

But there are no guarantees that the Isa allowance will be immune from future attack. Remember: wealth-hating Labour.