Taxing prospect of a Labour victory: Sue Fieldman consults the experts, and finds that much of the advice is the same whichever party gets in

THE PROSPECT of Tony Blair's bandwagon rolling into power at the next election is prompting people to review their finances so that they are not caught on the hop if there is a dramatic change in the tax and investment regime.

Labour has not actually committed itself to anything, but the slightest whiff of change - even one at least two years away - will send investors rushing to their accountants for tax-planning advice.

The consensus is that much of the advice is the same whichever party gets in. Peter Hargreaves, of the independent financial advisers Hargreaves Lansdown, says: 'If we are to believe what is coming out of Labour central office Mr Blair is slightly right of Edward Heath.'

If the Labour hype becomes a reality we can apparently expect a reduction in the income tax rate to 15p in the pound. To pay for this tax relief on mortgage payments and pension premiums could end.

The Conservatives have already cut back mortgage interest relief - from 6 April 1995 it goes down again to 15 per cent - so its abolition in due course looks virtually certain.

If you have the money, the advisers suggest that you might want to consider paying off your mortgage now. If you are planning to repay when tax relief is finally abolished do not lock up your money long- term, otherwise you may have to pay penalties to get access to it.

All the advisers are unanimous that the Labout Party would not tamper with the tax treatment of pension payments, but there is no harm in hedging your bets. Mr Hargreaves says: 'It would be a good idea to pay two single premium pension payments into a pension plan - one in this tax year and one next.'

There is a consensus that there is likely to be an increase in the higher rate of income tax from 40 to at least 50 per cent.

Michael Norrie, of the chartered accountants Norrie Stokes & Perrett, advises people who know they will receive a bonus over the next few years to try to ensure it is paid sooner rather than later so that it is taxed at 40 per cent.

He says: 'With any threat of a higher rate tax it is a good time for a husband and wife to review their income to ensure they are making full use of their tax allowances.'

Inheritance tax looks a likely target for change. The Conservatives have always treated the death of the owner of a small family business with a modicum of tax sympathy.

Mr Norrie says: 'Now is the time to consider transferring shares in the family company down through the generations or set up a family trust. You should also review your will.'

Where tax-free investments are concerned the advisers fear that personal equity plans will come under attack. Elissa Bayer, associate director of the stockbrokers Gerrard Vivian Gray, says: 'I think PEPs will go. If a couple have put in their full PEP allowance over the years you are looking at tax refunds of many thousands of pounds. It was not what the Government intended - it was meant to be for small savers.'

Meanwhile, if you have the money to invest in equities, including unit trusts, continue to make full use of the PEP allowances.

The general view is that tax-exempt special savings accounts (Tessas) will not be touched, not least because the rate of interest is not hugely attractive.

The family budget could be hard hit by proposals to put VAT on school fees and remove private schools' charitable status.

Mr Norrie says: 'Parents may want to consider doing a deal with the school bursar to pay fees in advance and then get a hefty discount for the pre-payment.

'There are problems, though. You have to be happy that your money is secure. Parents will want to check the school's finances and be confident that it will survive. There will also have to be agreement about what happens if the child leaves.'

The cost of private medical insurance is certain to increase under Labour. It is mooted that tax relief on premiums would be abolished and punitive penalties put on the cost of private care.

Penny O'Nions, of the independent financial advisers De Havilland, says: 'Labour will be intent on making private medical insurance as unattractive as possible and premiums will go up as a result.

'But I do think that Labour will give tax relief on long-term care premiums which provide money for your care when you are elderly.'

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