Spring Budget 2020
In terms of public spending, the Budget has been completely overtaken by events arising from the Coronavirus pandemic and the urgent need to provide support to businesses, individuals and the health service.
Very few tax measures were announced in the Budget itself and we do not anticipate any imminent further tax changes, although raising tax revenues in the longer term seems inevitable. One notable omission from the Budget was any major reference to inheritance tax, despite rumours that either or both agricultural and business property reliefs could be restricted and despite recommendations for reform from the Office of Tax Simplification and All Party Parliamentary Group for inheritance and intergenerational fairness. It seems unlikely that inheritance tax will be off the agenda forever, so maybe this will be tackled in the Autumn and we might then see a response to HMRC’s Consultation on Trust Taxation launched in November 2018. Meanwhile, the most relevant private client measures include:
As anticipated, this relief on gains which qualify for a 10% rather than 20% rate of capital gains tax on disposals of businesses was scaled back by reducing the lifetime limit from £10m to £1m with effect from 11 March. It will also be re-named Business Asset Disposal Relief from 6 April 2020. The new limit takes earlier disposals into account and there are measures to counter pre-budget arrangements designed to “bank” the relief. The anti-forestalling measures will apply the new lifetime limit to these transactions, unless it can be shown that they were not entered into to obtain a tax advantage.
SDLT surcharge for non-residents
Another expected change which also formed part of the Government’s election manifesto and had previously been consulted upon, is the 2% SDLT surcharge on non-resident purchasers of residential property in England and Northern Ireland. This will take effect from 1 April 2021 and will take the top slice rate of SDLT for non-residents to 17%. A consultation response and draft legislation are awaited and will hopefully clarify when and how non-resident status will be assessed in the conveyancing process. These changes could well have an adverse impact on the London property market in particular and add to an increasingly challenging environment.
Pensions savings: annual allowance
Although higher rate tax relief on pension contributions remains untouched, there were changes to the rate at which the annual allowance for tax relieved pension savings is tapered away for individuals. From 2020-21, individuals with income below £200,000 will not be affected; and the annual allowance will only begin to taper down for those who also have an “adjusted income” above £240,000. For people with total income (including pension accrual) of over £300,000, the annual allowance will taper down from the current £10,000 level to just £4,000.
Tax evasion and avoidance
As ever, the Chancellor stressed that he would take further measures to combat tax evasion, avoidance and non-compliance. Details of changes to the GAAR, the ‘enablers’ and ‘promoters’ regimes are expected in the summer with a view to changes taking effect from Royal Assent of the Finance Act 2020-21.
The Government announced, and has now published, a call for evidence running until 28 May on “raising standards for tax advice”. This explores the extent of the market for tax advice and whether current government interventions work. The aim is to reassure taxpayers that the advice they are receiving is reliable. It seems that potential reforms are not aimed at regulated tax professionals who already adhere to professional codes of conduct and HMRC standards in relation to taxation, but more at those on the fringes who are not appropriately qualified or regulated and there is a clear emphasis on tackling poor behaviour, lack of expertise and a strong consumer protection angle.
Forthcoming capital gains tax changes
Some of the measures announced by the last Government will go ahead. On disposals of a property that was formerly a main residence, the final period of ownership exemption will reduce from 18 months to 9 months with effect from 6 April and lettings relief will also be restricted to owners who occupy with a tenant. These changes will coincide with the introduction of a 30-day window for the payment of capital gains tax on disposals of residential property by UK residents.
Other rates and reliefs
Income tax rates and thresholds remain unchanged from the 2019/20 tax year, as will the Inheritance tax rates and nil rate band. The capital gains tax annual exempt amount will increase from £12,000 to £12,300 for individuals and Personal Representatives, and will be £6,150 for trustees, although capital gains tax rates will remain unchanged. Corporation Tax will now remain at 19%. The official rate of interest will be reduced from 2.5% to 2.25%. This is used to measure the taxable benefit of employment related loans, benefits under the pre-owned assets tax and loans made on beneficial terms by trustees of offshore trusts.