Following last week’s General Election and the creation of a Conservative Government, this article looks further at some of the key tax changes we can expect to see over the next five years. These changes are based on the Conservatives’ manifesto pledges and announcements made by them to date. What is clear is that many of the commitments made regarding tax freezes, increased allowances and thresholds will be need to be funded by continued attention in the area of tax avoidance and tax evasion, and in their words ensuring “those who can afford to pay the most do”. [It is therefore safe to assume that there will be continued scrutiny from HMRC and the Government in the way that existing reliefs, such as PPR, Entrepreneur’s relief, are being used and where perceived abuses are identified that these will be swiftly redressed.]
The Chancellor has so far not indicated whether there will be a second Budget in 2015, however it is widely expected that such an announcement will be made shortly and we can expect to see some of this pledges to be then put on a more formal footing.
Tax Lock legislation
The Conservatives promised to introduce legislation within the first 100 days of Government that will legislate that for the term of this Parliament, (i.e. potentially therefore up to May 2020), that there will be no increase in VAT, income tax or national insurance rates.
Over the course of the Parliament, the personal tax allowance will be increased to £12,500 and a direct link will be made between the national minimum wage and the personal tax allowance. The manifesto indicated that this new “Tax Free Minimum Wage law” which will mean that nobody working 30 hours on the Minimum Wage will pay income tax on their earnings, will be applied from the first Budget after the General Election. This change is likely to replace the historic 1977 “Rooker-Wise” amendment which currently sits on the statute which forces governments to update tax thresholds to rise in line with inflation.
Again by the end of this Parliament, the threshold for the 40% higher rate of income tax will rise to £50,000.
The ability to transfer part of the personal allowance between spouse and civil partners, where the higher earner is a basic rate taxpayer will be retained and the transferable amount will rise annually at least in line with the rate of the personal allowance.
In relation to the non-domicile status, the manifesto indicates that there may well be further increases in the annual remittance tax charge paid and they will continue “tackle abuses of this status”. Whilst not explicitly within the manifesto, there has been some recent speculation that one area that the Government may look at, is introducing a limitation on the ability to inherit non-domiciled status for individuals born in the UK.
Unlike income tax, there are no commitments made to the rate of Corporation tax, there is an aspiration “to maintain the most competitive business regime in the G20” within the manifesto, and the Conservatives have previously voiced their opposition to Labour’s plans to increase Corporation tax. To date there has been no indication of a Corporation Tax roadmap similar to the one issued under the Coalition Government. However as this approach was widely appreciated by commerce in providing more stability, it is hoped that a similar document may be produced for this Parliament as well.
On National Insurance there is a continued pledge to help smaller take on new workers through the Employment Allowance and also abolishing employer’s NIC for young apprentices under 25 in 2016.
In relation to tax reliefs, a new significantly higher, permanent level for the Annual Investment Allowance (‘AIA’) will put in place and as well as the promise to expand creative sector tax reliefs “when possible. Given that the AIA is currently for up to £500,000 of spend but is due to revert to £25,000 from 1 January 2016 and there was already undertaken in the Budget earlier this year that the AIA level would be set at a more generous rate, little additional has been promised here.
A consultation into the business rates regime has already commenced and there is a commitment to ensure that implementation of the changes will be made by 2017.
A new main residence allowance of up to £175,000 per person will be introduced for inheritance tax purposes. This additional threshold allowances will be transferrable between married and civil partners and would potentially allow a family home up to the value of £1 million to be passed to future generations.
The above inheritance allowance is to be funded by a reduction in the level of tax relief on pension contributions for people earning more than £150,000.
Recent Finance Acts have already seen significant changes in how individuals can use their pension savings and when and how they pass them on and whilst no commitments are made regarding the future for pension plans, the idea of flexibility and more personal accountability are likely to be continuing themes in this area.
The immediate threat of a Mansion Tax has clearly now been removed, however there is increased pressure on looking at Council Tax bandings and revaluing the properties for these banding purposes. Within the manifesto, there is an aim of helping local authorities keep council tax low for hardworking taxpayers, and ensuring residents can continue to veto high rises via a local referendum, but clearly there still remain scope to look further at Council Tax.
Tax Avoidance and Tax Evasion
The Conservatives have set themselves a target of raising an additional £5billion from continuing to tackle tax evasion and aggressive tax avoidance and tax planning. Key to this approach is leading the charge on transparency and international efforts to ensure global companies pay their fair share in tax. They will push for all countries to sign up to the Extractive Industries Transparency Initiative, review the implementation of the new international country-by-country tax reporting rules and consider the case for making this information publicly available on a multilateral basis. They will also ensure that developing countries have full access to global automatic tax information exchange systems.
Coupled with this approach, the Office of Tax Simplification will be established on a permanent basis and its role and capacity will be expanded and legislation is to be put in place to make it a criminal offence if companies fail to put in place measures to stop economic crime, such as tax evasion and the penalties will be put in place which “are large enough to punish and deter”.
For further information please contact the TaxDesk on 0845 4900 509 and ask for the OMB team.