Tax and The General Election – Don’t Miss Out!
I am loathed to start an article with the old chestnut about nothing being certain other than death and taxes so, instead, I will simply say at the present time, with the general election looming, nothing is certain but death and changes to taxes.
Whatever the outcome on 12 December it is likely that major changes to various taxes will be just around the corner. The difficulty is that we are living in a time of uncertainty and it is hard to predict exactly what the changes will be. All we know for certain is what the tax laws presently are.
This is why now is the time to talk to us, particularly if you are considering tax planning, changes to structure of a business or any other major financial decision. Any delay in doing so might prove to be a very expensive mistake for you and your family. Opportunities that presently exist may soon disappear.
It is interesting to look at some of the changes the Labour and Conservative parties have discussed in recent months. (In focusing on Labour and the Tories I am not discounting the possibility of the Lib Dems, the Green Party, Plaid Cymru or anyone else forming the next administration but focusing on the two main parties illustrates how hard it is to know what will happen).
Much of the tax planning our clients do revolves around Inheritance Tax.
Conservative Housing Minister, Robert Jennick, recently said that IHT was fundamentally unfair, could result in people paying tax twice and should be cut or abolished. When Chancellor Sajid Javid said at the Tory Party Conference in September that changes to IHT were “on his mind” it added further fuel to the belief that major changes were on the way.
At the time of writing Boris Johnson is under great pressure to commit his party to a major cut in IHT in advance of the election but what the Tories would end up doing is not as clear cut as might appear to be the case. While a major overhaul of IHT would undoubtedly benefit many of the Conservatives’ existing wealthy backers, the effect on the middle ground voters that the party needs to attract, and therefore how popular such changes would be to such voters, is less certain, particularly given that a married couple already has basic IHT allowances adding up to £950,000.
At the other end of the spectrum the Labour Party clearly dislikes the idea that wealthy families can pass almost a million pounds of wealth down through the generations free of tax. Labour have discussed abolishing IHT completely and replacing it with a lifetime gifts tax. Under such a tax as it has recently been discussed, a child would be taxed on everything received from his or her parents over the first £125,000 whether this was by way of lifetime gifts or on the death of the parents. Given the relatively favourable treatment of lifetime gifts at present, under which most such gifts will be free of tax so long as you live for seven years after making them, if you are considering making gifts to save tax, now might be the time to do so.
It also seems likely that there will be changes to exemptions and reliefs that many clients have used in recent years as part of their legitimate tax planning strategies, such as business property relief and agricultural property relief.
If you are considering making gifts or making use of the current exemptions to save tax, therefore, you might want to do so now.
Speak to us first, though, because there might be other considerations such as Capital Gains Tax.
Capital Gains Tax
Talking of Capital Gains Tax, it seems highly likely that whatever the outcome of the election the CGT rules will be less favourable in the future than they presently are.
The abolishment of entrepreneurs relief has previously been discussed by the political parties which would affect our business owning clients.
Similarly, holdover relief, under which CGT can be deferred by the use of certain types of trusts is likely to come under scrutiny.
The basic CGT rates are at an historic low (28% on residential property and 20% on most other assets) and are likely to increase. If you are considering dealing with assets which have increased in value since you acquired them, speak to us now.
It should also be borne in mind that there have been previous examples of the CGT rate increasing during tax years. It should not be assumed that changes will only come into effect in April.
Income Tax has always been an area, of course, where the ideologies of the parties has differed.
It seems clear that a Labour administration would increase Income Tax for medium to high earners.
At the other end of the spectrum, in the lead up to his campaign to become his party’s leader, Boris Johnson promised to increase the threshold for higher rate Income Tax, which would have significantly benefited many middle earners. He subsequently rolled back on that and any proposals have been lost, in any event, in the maelstrom of Brexit but his comments gave an indication of the direction of his thoughts.
What does seem clear is that given the spending plans already announced by the major parties, someone is going to have to pay more tax.
It might therefore be a good time to consider where you income is coming from. Do you need to change the way in which your money is invested or, if you are a business owner, would changes to the structure of your business be appropriate?
Business owners will also be interested in changes to Corporation Tax.
The present rate is 19% and this was scheduled under the existing government to reduce to 18% from April 2020.
The Labour Party has, however, suggested that it would increase the rate to 26%, almost half as much again as the intended 18% rate.
This would have a real impact on our clients with owner managed businesses who live on salaries or dividends. A significant increase in the rate of Corporation Tax could leave many such clients with less money in their pockets from the same profit.
They should therefore be speaking to our Corporate Department now about the options they might have when the election result is known in relation to how they extract remuneration from their businesses.
Labour have also discussed abolishing Council Tax and replacing it with a Land Tax which could represent a significant additional expense for, amongst others, people with vacant properties or buy to lets.
In the months to come those owning buy to let properties could face a triple whammy of Land Tax to pay, higher Income Tax on the rent and a higher rate of Capital Gains Tax if they try to dispose of the property.
Nothing in this article is intended as advice about what will happen to taxes after the election because it is impossible to know. We do not know who will win the election, who they might have to get into bed with to form an administration and the concessions they might need to make to do so and which of the many tax changes that have been mooted will actually happen.
The point of this article is that the one thing we do know is the present tax rules. Many perfectly legitimate tax planning strategies that our clients have used over the years which are presently still available may shortly disappear. If you do not take our advice now you might find in the future that opportunities you presently have no longer exist.
Come and talk to us and make sure that you are not the one to miss out.