With the manifestos published what seems like an age ago and the final debates now broadcast, opinion polls suggest that the UK general election remains too close to call with leaders this week furiously visiting marginal seats around the UK.
With a dead heat very possible, and no clear majority, the big question is which party will be the ‘King Makers’, with the Liberal Democrats OR SNP most likely to be involved, and almost certainly the DUP boosting seats for which ever party is given the chance to construct a government.
With voting this Thursday we have pulled together a run down of the key policies and what these mean for our clients both in business and personally.
Overall the awareness of tax avoidance remains high irrespective of whether each parties ‘electoral promises’ can be funded through this crack down.
This means the relentless war on perceived tax avoidance is unlikely to abate and it has almost become unquestionable amongst the parties that there is a never ending series of opportunities for further revenues to be captured.
Therefore tax planning needs to recognise this step change and the realisation that what may seem like benign legislation against a minority can create serious obstacles to business objectives for the majority.
This must now remain at the forefront of thinking particularly longer term planning.
It is clear that planning needs a strong commercial purpose and be capable of robust commercial justification .
Key areas for change could be:
- Employers’ National Insurance on Dividends particularly from close companies (I.e. under the control of less than five people).
- The withdrawal of virtually all benefits to non- domiciliaries.
- The curtailment of key business reliefs by Labour and possibly a reduction in the level of Entrepreneurs’ relief.
- A hardening attitude by HMRC on tax irregularity with increased sharing of information generally.
- A complete blitz on historic tax schemes tempered by a pressing need to settle long standing disputes without the threat of extensive judicial process.
- The final abolition of tax relief on pension contribution in excess of the basic rate.
- Imposition of a tougher regime on transfer pricing coupled with the new Diverted profits Tax.
- An overhaul of HMRC to enhance efficiency in dealing with tax irregularity in business.
- With a Labour administration opportunities to tax wealth through a widening of the Mansion Tax and in areas of IHT particularly trusts.
- A likely realignment of CGT rates to align with income tax rates.
What the Parties Say:
British taxpayers should expect to feel worse off under whichever party wins the general election this week according to the Institute of Fiscal Studies.
Labour’s proposal for a 10p rate of income tax for low earners is a key part of its promise to “make Britain work for working people”, paid for by scrapping the Conservatives’ married couples’ tax allowance, this would amount to replacing “one small complication in the tax system with another”, the IFS have warned. If, as Labour says, the new tax band was to be funded only by cancelling the allowance, it would be “worth a princely 50p a week”. Separately, Ed Miliband’s promise to restore the 50p top rate of income tax would be likely to raise a paltry £100m.
The Conservatives’ main tax cut pledge, an increase in the personal allowance, while sold as a boost to ordinary working families, would be of most value to middle and higher earners. The 44% of taxpayers who already earn too little to pay income tax would not benefit at all; while two-earner couples benefit twice. Taken together with the Conservatives’ other income tax proposals, including raising the threshold for paying the higher rate, the main beneficiaries would be those earning between £50,000 and £150,000 per year.
The IFS warned that the number of earners being dragged into paying the higher rate of income tax was likely to increase sharply in the coming years as the threshold rises more slowly than inflation.
Labour has announced their intention to scrap the non-dom tax status enjoyed by those who are British citizens but do not pay tax on earnings made outside the UK. Mr Miliband has claimed that their special status has been abused and that all of those calling the UK home should pay full British tax on all their income.
Conservatives have promised that inheritance tax would not be paid on estates worth less than £1 million. They propose adding a new £175,000 tax-free allowance to a property – doubled if a couple is involved. The new threshold would effectively stand at £500,000 for an individual and £1,000,000 for a couple, although it should be noted that the allowance would taper away if people leave behind assets worth more than £2 million.
Labour’s mansion tax – one of the most controversial elements of Ed Miliband’s promise to raise more tax from the wealthiest in society – would cost the owners of £3m-plus homes around £16,600 a year, if the party was to raise the planned £1.2bn in revenue, the IFS said.
The IFS also expressed scepticism about the claims of all the main parties to be able to raise large sums through anti tax avoidance measures that Labour have declared an “all out assault” on.
They said the big gains pencilled in by the parties from tackling avoidance and evasion were “plucked from thin air to make their plans add up”.
Lastly Labour are the only party who have openly refused to rule out an increase in Corporation Tax, leading critics to suggest it could rise by as much as six per cent. As a result, Labour has faced accusations of being “anti-business”.
Who ever enters Number 10, we can expect a snap budget announcement following the election to put these promises into action.