What will the Budget 2017 tax rates and allowances be?
Increases were never really on the cards, but equally none of the main tax rates for income tax; corporation tax (CT); capital gains tax; and VAT, is likely to be significantly reduced (beyond the previously announced reductions to the CT rate to 17% from April 2020).
Healthy property and equity markets have boosted tax receipts. Previous indications of a target rate of 15% for CGT aren’t even on the back burner now. Rising property values, especially in the residential sector, have increased SDLT revenues, especially following the introduction of the 3% “surcharge”. For commercial property, SDLT rises look highly unlikely at a time when the increases in business rates are causing a furore.
Income tax personal allowance and higher rate thresholds will increase towards the £12,500 and £50,000 targets set in 2015.
Some reliefs may be trimmed or restricted to reduce the cost to the Exchequer, probably in the name of countering abuse. On the basis of recent changes which then had to be hurriedly reversed (at least partially) it would be better if entrepreneurs’ relief were to be left well alone. The effects of the recently introduced Investors Relief will not be felt before 2019/20. So the one relief that may attract attention is main residence relief, which may have come to be seen as too much of a drain; in 2013, main residence relief was estimated to cost £10.4bn and residential property inflation, especially in the high-end market, will only have pushed that figure up.
What will Budget 2017 mean for individuals?
Expect continuing emphasis on countering avoidance, especially by non-UK domiciliaries and users of offshore ownership vehicles. The original proposals to tighten up the non-dom tax régime will not be watered down so much as mitigated to a more proportionate level to level the playing field rather than slant it against non-doms.
Inheritance Tax (IHT) on residential properties on offshore corporate and trust structures holding residential property is coming in and this area is now so complex that much of the focus in developing legislation has turned to the order in which the annual tax on enveloped dwellings (ATED), ATED-related CGT non-residents’ CGT general tax rules and specific rules on settlements (i.e. trusts) interact.
When ATED was introduced in 2013 there was no provision for "de-enveloping" of residential properties from such structures: the tax penalties, mainly CGT and SDLT, of de-enveloping have left many residential properties sealed in their envelopes. Now that these structures also attract IHT there is even more pressure for some allowance to be provided for de-enveloping, even if only in a reasonably brief window. Of course the Government’s view may be that owners of enveloped residential property don’t need additional reliefs for de-enveloping when doing so will save them tax, but if such a relief is ever to be introduced now is probably the time.
IHT reliefs that are often called into question are those for non-active owners of business property, agricultural property and commercial woodlands. A chancellor looking for an eye-catching initiative might look to refocus these reliefs to benefit only owners who are actively involved in the businesses. This would be easy to present as a counter-abuse measure stopping people investing in unquoted (including AIM) trading company shares and agricultural/forestry property as part of IHT planning. Longer qualifying ownership periods are also a possibility.
What else to expect in Budget 2017
Reliefs such as EIS, SEIS, social investment tax relief (SITR) and for VCT investments are customarily pushed to the limits allowed under EU state aid rules: if the Chancellor can squeeze any more benefit out of these expect him to do so.
Perhaps predictably the number of tax-motivated property business incorporations has increased following the announcement of restrictions on income tax relief for the financing costs of residential property businesses. This may lead to some stable-door bolting in the form of restrictions on CGT and SDLT incorporation relief.
Savings / Pensions
After constant changes we hope there will no further changes to pensions, but there is always a concern that the cost to the Exchequer will force a reduction in tax relief.
This remains an area where the focus is on anti-avoidance, in particular “disguised remuneration” using ever more complex trusts, foundations and other offshore structures.
The proposals to tighten up the IR35 rules on contractors engaged by public bodies have been criticised both for the short time allowed for implementation and at the same time may be seen by some as begging the question “Why not all contractors?” It will be interesting to see what announcements are made on this topic.
Corporate and International Tax
The major issues in CT relate to interest relief, corporate loss relief and the substantial shareholdings relief but these have largely been addressed by past announcements, so there should be little to add in these areas except as window-dressing and to refine measures already announced. As these changes are hugely complex, simplification would be welcome. Companies are left with very little time to prepare for commencement of these new rules, and we would hope the Government gives longer lead in times in future.
Particularly hard hit over recent years has been the banking sector, which the Chancellor may now want to mollify to avoid an exodus to other territories only too happy to welcome them.
Anti-avoidance, abuse and evasion
We can expect to see the results of consultations under the headings of 'Notification of offshore structures', 'Strengthening tax avoidance sanctions and deterrents' and 'Extension of data-gathering powers to money service businesses'.
Making Tax Digital
The drive to implement MTD fully by 2020 still steams on, regardless of representations and challenges. The ambition of introducing MTD in 2018 still looks remarkably ambitious given the amount of work remaining to be done.
Messages in a plastic bottle?
A plastic bottle tax/levy has already been piloted in Scotland and has attracted favourable comment outside the soft drinks industry, so may be opened up for consultation about UK-wide release.
We’ll be posting our response to the Budget here on the day, and our experts will be live tweeting the Chancellor’s announcement, so follow us on Twitter @Mazars_UK to stay up to date.
Following the Budget we will be hosting a number of seminars around the country to explain what it means for you and your business. See below for details.