The Chancellor, who already has a Summer Budget and Autumn Statement under his belt since the Conservatives won the election in May, is expected to chart a course towards generating a surplus by the end of the Parliament. But what might the 2016 Budget have in store?
James Hender and Lucy Brennan, partners in the Private Wealth Group at Saffery Champness, have been considering what the likely announcements at the 2016 Budget might be.
James Hender, partner and Head of the firm’s Private Wealth Group at Saffery Champness, comments:
Pension tax relief
“It had been anticipated that changes to tax relief for pension contributions would be announced, so that relief was given at a flat rate. Whilst it seems that these changes will not now happen, it's worth bearing in mind that we have not seen a Budget without changes to pensions for some years, so some tweaks may still be announced."
“A consultation has recently closed on how to address the perceived mischief of collecting profits within a company until they can be paid out in capital form. We should expect changes to be announced to tackle this.
“Anyone contemplating winding a company up in the short-term would be well advised to think about doing so before the end of the tax year.”
A focus on promoting entrepreneurship
“Entrepreneurs’ Relief currently allows for certain gains – of up to £10 million realised by an individual – to be taxed at 10% rather than the usual 28%. This gives a maximum possible saving of £1.8 million for each qualifying individual. In recent years, we have seen slight changes made to combat the relief being claimed in circumstances that HM Revenue & Customs (HMRC) considers inappropriate. For instance, this sort of tax planning is being used in an attempt to shelter gains on land which falls within local development plans. HMRC is likely to target this sort of practice and seek to put a stop to it.”
Lucy Brennan, partner in the Private Wealth Group at Saffery Champness, added:
Aligning capital gains tax with income tax
“In the past, we have had capital gains tax rates aligned with income tax rates, albeit with reliefs for the inflationary increases in asset values. One way to stop taxpayers from converting income to capital is to remove the incentive to do so that is caused by any difference in tax rates. In this way we could potentially see capital gains tax rates increased to 20%, 40% and 45%. Of course, the government has announced the ‘triple lock’, whereby income tax, National Insurance contributions and VAT rates will not be increased during the life of the Parliament. The fact that there is no mention of capital gains tax is interesting.”
“The trust changes introduced in 2006 have resulted in an increased use of vehicles designed to allow the passing of wealth through generations whilst still maintaining a degree of control. Companies are increasingly being used as a channel for these gains.
“In a recent consultation, HMRC hinted that it might consider reintroducing the apportionment rules. These rules mean that, if a company does not distribute enough of its profits to shareholders, it is deemed to have done so for the purposes of calculating the shareholders’ tax. In these days of more complex and ever lengthening legislation, this could be an ‘easy win’ for the Chancellor as there is existing legislation in place which could be dusted off for this purpose.”
Measures to tackle avoidance
“No Budget is complete without yet another speech about the loss of tax to the Exchequer as a result of tax avoidance. We should expect more changes to tackle perceived abuses, although it is hard to guess what new areas will be targeted. There is a cultural and political shift occurring and we might expect further alignment of HMRC and the judiciary with public opinion.
“The reality remains that one man’s judicious tax planning is another’s immoral avoidance.”
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