Downing Street

Market Musings -

A resounding UK election has a muted market response

On the dawn of a new political era in the UK, we explore what a Labour victory means for the markets, tax, and your financial planning.

As predicted by the polls, we have seen a change of power in the UK after 14 years of Conservative rule. Sir Keir Starmer will move into Number 10 Downing Street following a landslide victory. The prospect of a change of government caused concern for many investors in the lead up to the election. We unpack what this means for markets and your finances.

Impact on markets

When considering the impact a political event may have on markets and investment portfolios, it is important to remember two things.

First, markets do not tend to jump around or move significantly in response to events that are clearly signposted before they happen. It was widely expected that this year’s election would result in a change of power from Conservative to Labour; the only real unknown was the size of the Labour majority. So, markets have had a long time to price this in, and it is no surprise there has been a muted response in financial markets, particularly in sterling or government bond yields.

Second, all is relative. Yes, for those of us living in the UK, a change of government can have sweeping effects on our personal lives; we may need to adjust our plans (more on this later). However, although the UK is the sixth largest economy in the world, our GDP only makes up approximately 3% of global GDP. Therefore, changes in the UK are unlikely to significantly impact the global economy.

At Arbuthnot Latham, we take a global approach to investment management. We do allocate to the UK market and some of our portfolios include a ‘home-bias,’ but our focus is on the global opportunity set. In the event of any significant moves in the UK market, we are willing and able to pivot our positions accordingly, though typically the main impact to our portfolios is through currency movements that affect the value of our overseas holdings.

Impact on taxes

According to the Institute of Fiscal Studies, an independent think tank, regardless of the victor in the polls this July, taxes would need to rise in the next five years. This makes sense. Government debt is at its highest level in more than 60 years and every party has been promising to increase provisions via public services. The question that is hard to answer is which taxes will be increased and by how much.

During their campaign and in their manifesto, the Labour party ruled out increases to ‘the big three’ taxes during their five-year term: income tax, national insurance, and VAT. Assuming they stick to this pledge, there are a few areas where taxes may change.

Capital Gains Tax (CGT): Some commentators assume that Labour will level up CGT rates with income taxes. This would simplify the current system under which CGT rates on investments are 10% for basic-rate taxpayers and 20% for higher- and additional-rate taxpayers. There is also some speculation that the already dwindling CGT exemption – currently £3,000 – will be removed.

Dividends: As with CGT, some speculate that there will be a simplification of tax rates, which could include increasing the rates of income tax paid on dividends in line with the standard rates. As a reminder, the dividend income tax rate is 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers. The standard rates of income tax for these three brackets are 20%, 40%, and 45% respectively.

Inheritance Tax (IHT) & ‘Wealth Taxes’: There has been talk that a Labour government will make changes to Inheritance Tax rules, or that they will implement a ‘Wealth Tax’ for individuals with a net worth above a certain threshold. The Institute of Fiscal Studies (IFS) highlighted three areas for reform and consideration, this outlined removing Business Property Relief (BPR) on AIM shares, capping BPR and Agricultural Property Relief (APR) to £500,000 per person and changing the rules on pensions, meaning that they no longer fall outside of an individual’s estate for IHT purposes.

Should you do anything?

When it comes to financial planning and investment management, speculation is a racy game to play. There are many examples of times where speculative investors have gotten things wrong. For years, there has been speculation that CGT rates will be levelled up with income tax. It has also frequently been touted that higher- or additional-rate tax relief on pension contributions will be discontinued. History tells us that it is not unusual for governments of any colour to change these more peripheral taxes and thresholds when they are keen to keep the 'big three' untouched. These rates and thresholds affect fewer people but can still result in big wins for the treasury's tax take.

Some proposed changes will have an outsized impact on those that it affects. Plans to apply VAT on private school fees has prompted a surge in prepayment of fees to sidestep the increased cost. For international individuals, the Conservative Government had already announced sweeping changes to the non-dom rules. Labour are widely expected to close what they see as significant “loopholes” in the plans. This includes capturing all foreign assets held in a trust for inheritance tax, whenever they were settled.

It is also worth noting that some changes to taxes do not require an immediate, knee-jerk reaction. For example, Capital Gains Tax. If you are planning to sell an asset like an investment property in the coming years, where there is one transaction that is liable for CGT, certainly a change in the rates is going to affect your net sale proceeds. But if we are discussing gains embedded within an investment portfolio, such as those that we offer at Arbuthnot Latham, the tax liability arises over the year from trades placed within portfolios and it is something that we actively manage for our clients.

Until we receive a budget from the new Chancellor (expected in Autumn 2024), we do not have the facts in hand. At Arbuthnot Latham, we believe in making considered decisions based on facts rather than speculation.

At this stage, it is difficult for us to advise our clients to make changes to their long-term plans based on something that may or may not happen.

What we do know, however, is that as things come into sharper focus and as we get a better understanding of Labour’s plans for taxes in the coming years, our relationship-led approach of looking after our clients is going to be invaluable. Clients should also work closely with their tax advisers where specific changes in rules are likely to impact them. We offer each of our clients a private banker, a wealth planner, and an investment manager (if they want those services). It is our job to keep abreast of changes in the investment and financial landscape and to bring the right solutions to you when you need them. We remain on hand to discuss, amend, and manage your long-term plans, whatever the future brings.

Further reading

Market impact: Investor insights for a year of global elections

We are over a third of the way through the ‘Election Year’ that is 2024, with almost 50% of the world’s population heading to the polls.



Further reading

Europe closes gap on US growth

The US gained significant attention through 2023 thanks to its economic data expectations during that period. However, in recent months, we have witnessed a moderation in the US economic data released relative to forecasts.



Further reading

UK inflation trends, growth prospects, and BoE's policy dilemma

While inflation currently remains elevated, we anticipate a decline in price pressures, paving the way for headline inflation to hit the Bank of England’s (BoE) target of 2% in the coming months. This would likely prompt the BoE to consider interest rate cuts in the latter half of the year. Additionally, recent upticks in market sentiment indicate a recovery in the economy following a brief technical recession.



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Author -

Gabriella Macari

Gabriella Macari

Senior Investment Manager

Gabriella Macari, Senior Investment Manager at Arbuthnot Latham, rejoined the Bank in 2023. Gabriella had previously been part of the Arbuthnot Latham team from 2019 to 2022. Throughout her career, she has actively contributed to various research teams, showcasing her expertise in financial analysis.

Gabriella's experience includes leading the Commercial Property research division. She also played a pivotal role in the development and launch of the Sustainable Portfolio Service in 2021.

Gabriella holds the title of Chartered Wealth Manager, Investment Advice Diploma and the Private Client Investment Advice and Management qualification. She holds a BSc (Hons) in Economics from the University of Bath.

Outside of her professional life, Gabriella enjoys cooking, finding joy in creating delicious meals. She is also a dedicated runner and maintains an active lifestyle. Additionally, Gabriella is a Formula 1 enthusiast, highlighting her interest in the world of motorsports.


This communication should be considered a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It is for information purposes only and does not constitute advice, a solicitation, recommendation or an offer to buy or sell any security or other investment or banking product or service. You should seek professional advice before making any investment decision. The value of investments, and the income from them can fall as well as rise, and may be affected by exchange rate fluctuations. Investors could get back less than they invest. Past performance is not a reliable indicator of future results. The tax treatment of investments depends upon individual circumstances and may be subject to change.

The contents of this communication are based on opinions or conditions as at the date of writing and may change without notice. To the extent permitted by law or regulation, no warranty of accuracy or completeness of this information is given and no liability is accepted for its use or reliance on it.