Tax and the Spring Statement – Everything Stays the Same, but Everything Changes

Reflecting on the Chancellor’s Spring Statement, it was clear that this was largely an opportunity to explain the direction of the economy; making the Government’s case as to why their plan is the right one and is working, even against the backdrop of continued world instability. Only time will tell on that, and the opinion polls suggest that the public remain unconvinced.

However, in terms of an event for announcing new policies, it was something of a non-event. So everything stays the same… or does it…? From a fiscal point of view, we need to remember that the main Budget is now in the autumn, and successive Governments have started to announced tax policy changes a long way in advance; sometimes years. So actually, everything changes… just not as a result of this statement.

As we approach the end of the tax year on 5 April, it therefore seemed useful to reflect on some of the key tax changes that we have coming up, most of which were announced in Rachel Reeves’ first two full Budget statements:-

• Making Tax Digital (MTD) – After many years of delay, MTD finally becomes mandatory for income tax, requiring the self-employed and landlords with turnover over the £50,000 threshold to keep digital records on approved software, and to file quarterly updates with HMRC. The thresholds reduce rapidly in future years. It is hard to believe that MTD was first announced by George Osborne back in December 2015, and that it has taken quite so long for the project to come to fruition. How many Chancellors have come and gone since then?

It remains to be seen how many taxpayers will struggle with the new requirements, especially those without advisers.

• The dividend rates of income tax will be increased by 2% for both basic rate and higher rate taxpayers (although not additional rate taxpayers). Those people with owner managed companies would do well to review their profit extraction strategies; if they are using significant dividends this may no longer be the right strategy, but it will depend on all of the circumstances.
• The CGT rate on business disposals qualifying for BADR increases from 14% to 18%, so BADR is now worth a maximum on £60,000. We expect a small flurry of small business disposals to complete by 5 April.
• The IHT changes to restrict Business Property Relief and Agricultural Property Relief to 50% come into effect. Although these are now subject to a £2.5m threshold, potentially transferrable between spouses, estates that hold larger interests in trading businesses or agricultural property will still be affected. It feels like there is still a lot of work for larger inter-generational businesses to do to plan for the changes, and while there has been a lot of focus on farms, there still doesn’t seem to have been much focus on trading companies.
• The IHT changes surrounding pensions don’t come into effect until 6 April 2027.
• The changes to pensions surrounding salary sacrifice don’t come in until 6 April 2029, so many companies are still looking to benefit from the rules between now and then.
• The “working from home” tax allowance of £6 per week will be removed this year.

With many other changes, such as the abolition of non-dom status and the general rise in CGT rates already introduced twelve months ago, it feels like there have been a lot of tax changes to dela with in a short period of time. It is therefore something of a relief that the Spring Statement hasn’t given us any further changes to contend with.

However, with so much global instability, and the public finances remaining fragile, we will have to wait and see whether the Chancellor will have to look for further tax rises in her full Budget in the autumn.