Yet Another Chancellor - Big Change In The Budget?
It will be nearly 18 months since the last Budget. In the meantime, we will have had three different chancellors following the unexpected resignation of Sajid Javid. The early years of a new Parliament are a good time to make radical changes. Many are predicting significant tax announcements on March 11th and big change in the budget.
The Government are not likely to increase headline tax rates. The Government are considering the abolition/restriction of many tax reliefs that we've got used to relying on. This would also have the effect of increasing tax revenue. However, it is likely that the changes will impact on those who are better off.
INHERITANCE TAX IN THE SPOTLIGHT
We are expecting major changes to inheritance tax (IHT) in the March Budget. This is following two reviews by the Office of Tax Simplification (OTS) and also a report by an All Party Parliamentary Committee. IHT is perceived as a complicated tax with numerous fairly trivial reliefs and exemptions. Currently the tax only generally applies to transfers on death and gifts within 7 years of death. The All Party Parliamentary Committee suggested that there should be a 10% charge on gifts during someone’s lifetime. This would be after an annual exemption (suggested £30,000) has been exceeded.
A more radical suggestion was the abolition of Business Property Relief (BPR) and Agricultural Property Relief. These currently allow a family business or farm to be passed on without paying IHT. The OTS also recommended a review of BPR so it may be worth considering bringing forward the transfer of all, or part of, the family businesses.
More routine IHT planning would be to make use of the current £3,000 annual allowance. Gifts up to £3,000 each year are exempt from IHT. If you haven’t used your £3,000 allowance from 2018/19 you can make gifts of up to £6,000 before 6 April 2020 without the gift being liable to IHT. Also consider making regular gifts out of your income. This would minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured. We can assist you in keeping the necessary documentation.
FURTHER CHANGES TO ENTREPRENEURS’ RELIEF?
Another tax relief that may be further restricted or even abolished is CGT entrepreneurs’ relief. This relief allows business owners to pay just 10% CGT on the first £10 million of capital gains when they dispose of their business and was tightened up in the Autumn 2018 Budget.
When first introduced, the relief only applied to the first £2 million of gains but the limit has been increased twice since 2008 to the current lifetime limit so the relief may be limited again in the March Budget.
WILL PENSION TAX RELIEF CHANGE IN THE BUDGET?
There are frequent rumours that pension tax relief will change in the Budget. This is even more likely this year as the new Government looks for additional tax revenue to fund its ambitious spending pledges such as the HS2 rail link.
There is speculation that the restriction for those with income over £150,000 may be removed but at the same time higher rate tax relief may be removed. One suggestion is that tax relief may be “simplified” by limiting relief to say 25% or 30% so that the government would increase a £750 pension saving to £1,000 but with no further tax relief.
If you have surplus cash you might wish to consider maximising your pension relief before Budget Day.