QUESTION: As we look forward to the government’s first Budget since their election victory, what changes are we likely to see from a personal tax perspective?
ANSWER: This Wednesday's Budget, the first since the UK left the EU, carries the weight of the nation’s expectations as the new government makes its first major financial statement. The significance and complexities surrounding this were exacerbated by the shock resignation of former Chancellor Sajid Javid and subsequent appointment of Rishi Sunak.
More than ever, tax changes in the Budget will not simply be of national concern. They will also speak to the UK’s position in taxation globally, both in terms of international business and the global climate emergency.
Whether driven by a negotiating position on the new digital services tax, by the climate change implications of a restructured air passenger duty or by off-payroll working in the private sector, the measures to be announced on Wednesday will require real-life changes for millions of people.
Income Tax and National Insurance
• The threshold at which National Insurance contributions will start to be paid is expected to be increased to £9,500, as previously announced.
• It is a relatively safe bet that there will be no immediate increases in income tax rates, national insurance or VAT given the Conservative Party’s manifesto pledge to uphold the “triple lock”.
• However, and despite the manifesto pledge, there are some whispers that there could be announcements for changes to VAT in the longer-term, given that some consider it to be a "European" tax.
Inheritance Tax (IHT)
• It is anticipated by some that there will be reforms to business property relief (BPR). BPR is a valuable relief from IHT and can provide up to 100 per cent relief on certain business assets, including shares in a private trading company, or an interest in a partnership, which is "wholly or mainly trading", provided certain other criteria are also met. Currently this test requires the trading activities of the business to constitute at least 50 per cent of all activities. It is thought that the Government may bring the test in line with that for certain capital gains tax reliefs which could mean that the trading activities of a business will need to constitute at least 80 per cent of all activities.
• This is also the first budget since the publication of the Office of Tax Simplification’s report suggesting possible IHT reforms, followed by the more recent report from the all-party parliamentary group reviewing "inheritance and intergenerational fairness" published on 29 January 2020, which also focused on possible IHT reforms. The government may use its majority to act on the recommendations in either report and implement more widespread reform to the IHT regime. This could include reducing the time period after which a gift is fully exempt from IHT from 7 years to 5 years (or possibly going even further); abolishing taper relief, or introducing a personal gift allowance in place of the current annual gift exemption and gifts in consideration of marriage or civil partnership exemption.
Capital Gains Tax (CGT)
• Amendments to Entrepreneurs' Relief (ER) are now widely expected. As a brief overview, ER reduces the rate of CGT on disposals of certain business assets from 20 per cent to 10 per cent, subject to a lifetime limit on capital gains eligible for ER of £10 million. Speculation as to possible changes includes: an increase in the current 10 per cent rate of tax on gains from disposals of qualifying business assets, a decrease in the lifetime limit of £10 million, and the complete abolition of the relief altogether.
Stamp Duty Land Tax (SDLT)
• There may be announcements relating to SDLT given that during the election campaign the Prime Minister pledged to remove the duty from all sales of homes under £500,000. Boris Johnson has also previously spoken of the possibility of making the payment of the duty the seller’s (rather than the buyer's) responsibility.
We await Wednesday’s Budget with eager anticipation and we hope the Chancellor will take the opportunity to provide tax breaks to help super charge the economy.
:: Feargal McCormack (f.mccormack@pkffpm.com) is managing director of PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
