WITH THE BUDGET only two weeks away the tax-and-spending rumour mill is in full flow. Accountancy Age rounds up accountancy firms’ predictions.
Chancellor George Osborne is expected reaffirm the coalition target of raising the personal allowance to £10,000 by April 2015. “Although there are suggestions of a more rapid rise, this is unlikely to feature as the cost of implementing it is so high,” says Francesca Lagerberg, head of tax at Grant Thornton.
There has been growing speculation that the Budget may include some form of “wealth tax”, possibly on people’s pensions or ‘mansions’. Deputy prime minister Nick Clegg has told David Cameron that he is not ideologically wedded to the 50p tax rate on earnings over £150,000 but that he could support its abolition only if it was offset by measures to extract even greater revenues from the wealthy, the Financial Times reported on Wednesday.
However, a wealth tax is likely to be opposed by many Conservative MPs, and possibly by the Prime Minister David Cameron, because it would largely affect natural Conservative voters who live in large houses but may have modest incomes.
One alternative suggested by George Bull, senior tax partner at Baker Tilly, would be to introduce a US-style lifetime limit on the gains a person could make from the sale of a their main home before they are taxed on their capital gains.
In the UK people can make an unlimited amount of gains from their main residence over their lifetime. Introducing a capital gain tax charge on gains of around £500,000 or more over a lifetime would not affect the typical family who needs to “trade up” their house over the decades, Bull says. A lifetime limit on gains from property sales would “achieve all the stated political aims, be workable in practice and overcome most technical objections”, Bull says.
The Treasury is expected to announce how much the top rate of income tax has raised.
Stamp Duty Land Tax (SDLT)
Most Budgets contain new rules to clampdown on tax avoidance.
Louise Somerset, tax director at RBC Wealth Management, reckons that a tightening of the Stamp Duty Land Tax rules (SDLT) is likely, particularly where UK properties are held by offshore companies and “ownership” of the property is transferred by a sale of the shares in the company. Currently such sales are not liable for SDLT. London mayor Boris Johnson colourfully wrote about the issue this week in The Telegraph.
Pension Tax Relief
There is mounting speculation that the government is planning some form of tax raid on pensions in the Budget.
Hargreaves Lansdown, the financial services company, said the Treasury could further cut the annual allowance for tax-free pensions from £50,000 to £40,000. “This might help to appease those who object to the tax relief benefits enjoyed by higher earners. Unlike other measures it would be simple,” Hargreaves says.
Drawbacks could include the relatively modest amount of revenue it would raise (a few hundred million pounds at most, according to Hargreaves) and a “negative effect” on investors’ confidence in the pension system.
General Anti Avoidance Rule
The Chancellor is also expected to say that the government intends to introduce a general anti-avoidance rule (GAAR).
In November last year, a report by Graham Aaronson QC recommended a “narrowly focused” GAAR, which he said would deter “abusive” tax avoidance and reduce legal uncertainty surrounding schemes.
The challenge for HMRC is writing a GAAR that is simple to understand and precise. It should apply to only the most dodgy avoidance schemes and shouldn’t penalise legitimate avoidance schemes or tax planning.
PKF predicts that the top rate of Capital Gains Tax, now 28%, could be increased to help fund a relaxation of rules for entrepreneurs’ relief.
Statutory Residence Test
Although the statutory residence test for individuals will not take effect until April 2013, PKF says it expects draft legislation will be published in the Budget.
In the 2011 Budget the chancellor said that the government would cut corporation tax by 1p a year over three years to reach 23%. PKF reckons there is a chance of a “slightly steeper reduction” in the corporation tax rate than currently planned.
A cut in the VAT rate on labour intensive services, such as building, is more likely than an across-the-board reduction in indirect tax – but even this could be too costly at the moment, PKF says.
There is an outside chance that the chancellor will impose a rate of VAT at 25% for luxury items. “This would raise additional revenue for the public purse on items that are not deemed ‘necessities’,” Grant Thornton’s Lagerberg says.
“This move will not go down well with wealthy individuals and those that wish to purchase luxury items, especially those who are also caught by the top rate of tax. It may even go as far as driving these individuals abroad.”
Tax experts expect an update on the Green Investment Bank, for example about the first projects it will support.
We are also awaiting details on potential tax breaks for energy-intensive industries, and details of how the government will support the launch of the green deal energy efficiency scheme.
There are also suggestions of BiS lobbying for the Carbon Reduction Commitment to be scrapped, according to our sister publication businessgreen.com.
Richard Le Tocq, head of Locate Guernsey, discusses the chancellor’s approach to high net worth individuals, and why relocation is increasingly attractive to HNWIs
MTD represents 'the single most significant change to the UK’s system of taxation in recent times', says Knill James partner Nick Rawson. So, how prepared are SMEs for digital tax reporting?
The firm says that the U-turn 'does not alter the need for a fundamental review of the way we tax work' and that the current tax system is in need of reform
Legislation on the NICs changes to be brought forward in the autumn following publication of 'the full effects of the changes to Class 2 and Class 4' in the summer