Taxing time waiting for clarity

Taxing timesTaxing times
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We’ll have a much clearer picture of how the new UK Government plans in earnest to start filling the£22 billion “black hole” it says it inherited, when Chancellor Rachel Reeves delivers her first Budget on Wednesday, says Euan Fernie, partner at accountants MHA

There’s been no end of speculation around its potential contents, but there is a general consensus that we’ll see changes in some key areas – especially Capital Gains Tax (CGT) and Inheritance Tax (IHT) – to raise the tax take in the short term.

Labour was clear before this year’s election that it would not increase Income Tax, National Insurance and VAT rates. But, did it leave some wriggle room with its commitment focused specifically on rates? That might leave the Chancellor with the leeway to make changes around certain exemptions or allowances that would yield more revenue for the Treasury. We’ll see.

Euan Fernie, MHAEuan Fernie, MHA
Euan Fernie, MHA | Supplied

We can certainly be more sure of witnessing reforms in CGT. As is the case with much of her contemplations, the Chancellor will need to strike a balance here – too much of an increase could be counter-productive, disincentivising disposals and undermining her tax goals.

Timing will also be occupying the thoughts of those at the Treasury as they try to settle on their optimum outcome. An immediate rise in CGT rates will leave people with no room to manoeuvre, but reforms introduced from next April would likely prompt a flurry of sales activity in the near future as individuals rush to take advantage of the lower rates – and yield more tax in absolute terms over the coming months.

IHT is similarly challenging, and certainly more emotive given its “twice taxed” characterisation, but it could also be more politically palatable because it typically impacts the wealthier. She may well look at some of the associated reliefs, and while abolition is probably off the cards, she could amend the conditions for relief to make qualification harder.

There will also be keen interest in the Chancellor’s moves around pension tax relief. Although there’s been some sense of the government rowing back on some of the more radical options that have been aired, we might expect to see, for example, the introduction of a flat rate of tax relief on pension contributions and an end to – or a revised ceiling imposed on – the 25 per cent tax-free lump sum.

The mood music suggests we will get a Budget that will feature an assortment of relatively modest measures across a range of fronts, collectively designed to help the government advance its economic strategy – unless, of course, it chooses to include a big-impact measure as a political statement.

However, there’s little evidence to suggest that.

One final point – the Budget announcement on the big day itself doesn’t typically carry all the detail people need to decide on their best course of action to mitigate their tax liabilities. There’s almost always value in getting behind the headlines and looking at the nuances.We’re certainly hearing from plenty of private clients who want to be ready for the time when the speculation stops and the Budget contents are finally out there.

MHA experts have detailed their insights on the Autumn Budget online here

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