The new Labour Government are announcing their first major Budget on Wed 30th October. They keep talking about a £22bn black hole and that those with the broadest shoulders will bear the brunt of any changes. They have already pledged not to make any changes to the headline rates of Income tax, NIC, corporation tax, VAT. It is hard to think where significant amounts of money could be raised from other areas, and there have been few rumours / leaks so there isn’t much definitive opinion in the profession about what changes might be imminent.
We’ve considered where we think the changes might come, and what action might be worth considering before then.
- Missing tax. Apparently there is a tax gap of some £40bn between the amount of tax that should be collected, and what actually is. These days, the tax rules are very tight so we imagine that amount is spread between: a) payment default; b) non declaration (black market); c) bending of rules, eg. R&D claims. We’ve already seen a huge HMRC effort in reigning in R&D claims and we wonder if this might be extended to other areas, and that the Gov’t might commit resources to tackling the black economy and other areas of abuse.
- Pensions. It is possible that tax relief on pension contributions might be restricted to basic rate. There is talk that the 25% tax free lump sum could be attacked. Also, a pension can be passed on to dependents free of IHT, on death. There are rumours that this could be attacked.
- CGT. Rates could be aligned with income tax. Areas where reliefs are given could be targeted, eg Business asset disposal relief, EIS, SEIS, holdover reliefs, Private Residence Relief. On death, assets transfer to recipients at market value – this rule could be attacked and instead, passed on at original cost.
- IHT. The Nil Rate Band of £325k could be reduced, and the Residential NRB (up to 175k extra) could be removed. Business Relief (you can get 100% relief on business assets / shares) could be restricted / removed.
- Other. It is hard to imagine any area above where changes would make huge differences. There could be surprise announcements in other areas, for example:
– for businesses, ‘full expensing’ of assets costs £11bn p/a so could be restricted – this will affect larger companies
– VAT registration limits could be reduced to tackle the black market economy and create more of a level playing field
– tax on e-commerce similar to that introduced in France?
– some kind of tax on profits siphoned off out of the country (Amazon, Starbucks, Facebook, etc)
– reduce tax benefits on electric cars?
– long term care – they could look to get individuals to contribute more to these costs rather than the state
– wealth tax……??
– tax timing – might they look to get more tax paid in advance to counter payment defaults?
What actions could you look to take in advance?
- It would be sensible, if you can, to bring forward pension contributions to before the budget.
- If you are over 55, you might consider taking your pension tax free lump sum (25%) but bear in mind that this might bring those funds into an IHT charge.
- If you have any control over timings of events, it might be worth trying to bring forward asset sales, or business investments, to before the budget
Overall, we think we just keep our fingers crossed, but most of the talk is around pension changes so we’d urge you to consider that aspect and discuss options with your financial adviser… not forgetting that Elsby have a very good team at Elsby Wealth Management who could help if you need it.