Simon Littlejohns, Tax Partner at Friend Partnership Limited, gives some thoughts on what might be expected in the forthcoming Budget.
The Conservatives now need to honour their Election promises and deliver economic and tax measures which will enable the UK economy to move forward. In particular the UK electorate will want to see the promised reduction in the tax burden for those in work.
The first stage in this process is Mr Osborne’s emergency Budget on 8 July. This will be the second Budget in four months and will give the Government the opportunity to advance existing initiatives and introduce new measures.
So what can we expect to see?
- We have been promised legislation which will ensure that there will be no increases in income tax, VAT or national insurance during the term of this Government.
- Further moves to increase the personal allowance and move the tax bands so that fewer taxpayers pay tax at the higher rates.
- Reducing tax relief for taxpayers paying pension contributions and paying tax at the top rate of 45%.
- There is now one unified 20% rate of corporation tax. It is difficult to see how there can be any further reduction in the rate.
- Clarification on the new Patent Box rules would be welcome given the uncertainty created by the challenge from the international community, in particular Germany, to the existing rules.
- Confirmation is expected that the Annual Investment Allowance will not revert back to £25,000 from the present £500,000 as has been suggested will happen on 1 January 2016. It is hoped that the AIA will be fixed at £500,000 for the foreseeable future.
Capital Gains Tax
- It is a glaring fact that CGT rates at 18% and 28% are well below the rates of income tax. Would Mr Osborne be brave enough to align the rates?
- It is hoped by many business owners that Entrepreneurs’ Relief will be retained. The 10% rate of tax which results on a business sale is seen by many entrepreneurs as an acceptable rate of tax to pay on exit.
- Aligning the rates for non-business disposals has some merit.
- The Conservatives have promised an IHT exemption for homes worth £1 million. How this might apply and to which properties is yet to be detailed – hopefully the Budget will give us more detail.
- There are a number of changes underway which will reform the operation of National Insurance. There is no sign as yet of a merger of income tax and National Insurance. Such a move would remove a considerable number of complexities for taxpayers and their advisers.
- With the changes to SDLT on residential properties announced in the March Budget there is now complexity with differing rates and bands for commercial and residential property – simplification is needed.
- The tax position of ‘non-doms’ was in the spotlight during the Election. Does Mr Osborne believe that a crackdown here would be a positive move for the UK?
- Anti-avoidance is very rarely out of the spotlight at present and further moves are likely.
There is plenty which could be done and I am sure that there will be a few surprises on the day. Let’s hope that the announcements are as positive as they can be in an improving economic climate.