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Today I'd like to take some time looking at the proposals which are outlined in the Liberal Democrat manifesto, and what changes to taxation they are proposing. The Liberal Democrats could be quite pivotal if the Conservatives don't get an overall working majority. They might form a coalition with Labour and the SNP or they might be supporting a minority Labour administration. So that means the Liberal Democrats' tax proposals are important.
So the liberal Democrats are proposing an additional £36 billion in taxes. The major change that has grabbed the headlines is an increase in 1% in the income tax rate that would be payable by all tax payers. In addition, the Liberal Democrats have proposed one or two interesting changes, and these really relate particularly to how investors and savers will be treated for tax purposes. The big change is that they are suggesting that there should be an abolition of the capital gains tax exemption that everyone has. That exemption is £10,000 in each tax year, so that could bring about an introduction of capital gains tax for a number of investors and savers who don't have to pay it at the moment.
The other thing the Liberal Democrats mentioned was that they would look at reforming the capital gains tax system and I think that could be quite profound and I think could align with some of the proposals that are outlined by the Labour party as well. The Labour party are suggesting that capital gains tax rates should be the same as income tax rates. So although the Liberal Democrats have not specifically mentioned this in their manifesto, I think if they are looking at reforming the capital gains tax rules and generally the Liberal Democrats think wealth should be taxed more than it is at the moment, I think we could see a situation where, like Labour, the Liberal Democrats go for an alignment of income tax rates that would be applicable to capital gains tax. So what that means is that today you would be paying capital gains tax at 20%, but if there was a coalition government, that rate could jump as high as 46%.
The other thing that the Liberal Democrats haven't mentioned is any reform to the inheritance tax system. The manifesto is completely silent on that, but I think it must be on the cards that they would also bring about a reform of the inheritance tax rules as well. In the lead up to the 2019 manifesto, there were suggestions that the Liberal Democrats would adopt a gift-based tax to replace inheritance tax, as outlined by Labour. So you can see that if there was a coalition, there would be a possibility of a bringing together of the Liberal Democrats and the Labour party manifestos, particularly as those changes relate to investments. So there could be quite profound changes coming down the line.