The collective sigh of relief amongst Britain’s taxpayers following the largely unexpected election result was almost tangible. No mansion tax, no 50% higher income tax band, no abolition of the non-domicile tax rules. As if this wasn’t enough, the whole tax services industry has been eulogising about the manifesto pledge not to increase income tax, national insurance contributions and Vat during the lifetime of the new parliament. However, as specialist providers of tax services like London based Baker Tilly have been quick to point out, it’s not going to be total plain sailing and there are still one or two areas of personal tax planning that warrant early attention.
Despite the close attention that the new government is going to pay to further cuts in public spending, the Chancellor’s aim to balance the books before the year 2020 implies that some tax increases look inevitable. So where might these fall and what should individual taxpayers be on the lookout for?
Remember, the government’s target is to eliminate the deficit while at the same time making several actual reductions in tax. These include the raising of the personal allowance to £12,500, the lifting of the 40% income tax threshold to £50,000, the new £1,000 savings allowance on bank interest receipts and the raising of the inheritance tax threshold so as to exclude domestic residences worth up to £1 million.
Tax services professionals suggest that, despite these manifesto pledges, there is still enough wiggle room for some subtle increases in personal taxation to offset some of this bounty.
Seasoned experts in tax services feel that those benefitting from the non-dom tax regime have probably got off too lightly in the past and that the price will be that there will be some significant tweaks to the rules to bring in more revenue while still leaving it attractive for very wealthy individuals to reside in the UK.
Similarly, the absence of any mansion tax does not negate the fact that property taxes on the most valuable domestic residences have been left behind by rampant house price inflation, especially in London. Providers of tax services stress that the present council tax system hasn’t been reviewed for a quarter of a century and feel that it is only reasonable that those with properties within the higher value bands should perhaps contribute more.
The tax services industry is, of course, well aware of two areas which the government have already signalled will raise additional revenue. First, of course, is tax evasion where it aims to raise at least £5 billion a year through further crackdowns on abuse and non-disclosure. Secondly, it has already stated that the inheritance tax concession will be paid for by reducing the tax relief on pension contributions for those earning over £150,000 p.a. It may come down to a maximum of 40% or even lower.
Professionals working in tax services insist that, although some of the aforementioned changes could be confirmed in Mr Osborne’s summer budget, they are unlikely to come into effect before next April. However, it is not unknown for tax changes to be brought in retroactively so anyone in a position to do so is strongly recommended to act as soon as possible. In particular, the tax services experts strongly advise that those earning over £150,000 p.a. should endeavour to make the whole of this year’s pension contributions as early as they can so that they might enjoy full tax relief at today’s rates.
Less urgently, specialists in tax services would suggest that, in view of the scheduled increases in personal allowance and higher rate thresholds, optimising the balancing of income between spouses would be beneficial. Similarly, it might also be an opportune time to consult your provider of tax services about effective use of the inheritance tax concessions to ensure that you take maximum advantage of the additional transferable allowance of £175,000 per spouse.
If you feel that you might be affected by likely changes in the personal tax regime following the election result and would welcome some specialist advice, the tax services team at Baker Tilly would be delighted to hear from you.