Whatever your views on the present political predicament in which we find ourselves, or what could, or should happen next, what is clear is that we are living in interesting times.
Time will tell whether that will end up being the proverbial curse, but the likely consequence is that changes to the way that we conduct business are coming.
Taxation is one of the levers that a prospective government has to facilitate change, be it to encourage certain behaviour or as a means of redistribution of wealth. There are a number of different sources that are indicating that changes may be afoot whichever side of the political divide may prevail.
On one hand we have the Office of Tax Simplification (OTS) whose ongoing brief is to review and simplify the tax code of the UK. The latest tax that has been under the microscope is IHT, this has made a number of suggestions that are likely to increase the IHT take including reviewing the generosity of Agricultural and Business Property Relief (which currently gives up to 100% IHT relief on gifts of farming and business assets). While the OTS is an independent organisation, it would not take too much imagination for a political party to implement their proposals.
On the other hand, we have just come out of conference season and have the prospect of an imminent general election. While detailed policy will be saved for the latter, the party Conferences have highlighted a number of tax reliefs which could be subject to change:
IHT has already felt the glare of the OTS and should be seen as firmly in the spotlight of both major political parties. There is a common desire to move towards taxing wealth, and this naturally brings both Capital Gains Tax as well as IHT rates and reliefs into the fore.
Comments were made at fringe events at both major part conferences suggesting that a number of tax reliefs had become more generous than their underlying policy objectives had intended.
Labour policy is, to quote Anneliese Dodds MP, “not quite there yet”, but they are looking at proposals from affiliated think tanks such as the Institute for Public Policy Research. Their report “Prosperity and Justice: A Plan for the New Economy” includes a number of key tax points:
- Aligning (likely increasing) CGT and Dividend tax rates with income tax rates.
- Replacing IHT with a lifetime gifts tax levied on the recipient with a lifetime allowance of around £125,000.
- Increasing Corporation tax to 24% while simplifying the system of relief and allowances to increase the tax base.
- Phasing out R&D tax credits and Patent Box other than for SME firms younger than 7 years old.
The Conservative policy is focussed on the increase in the personal tax bands, increasing the basic rate band to £80,000. Other policies seem to be less defined, perhaps not surprising given the length of Boris Johnson’s tenure and his other priorities.
The common goal of moving towards a tax on wealth rather than income would seem to bring in to focus capital taxes in particular and could include the following reliefs:
- Entrepreneur’s Relief – currently offering a 10% tax rate on qualifying gains up to a £10m limit.
- CGT rebasing on inherited assets.
- Agricultural and Business Property Reliefs
- Private Residence Relief.
While the times ahead may indeed be interesting, we have perhaps a moment of reflecting on the reliefs that we currently have and their relative generosity. If circumstances allow, you would be well advised to consider using them while they are still available to help mitigate any forthcoming uncertainty.