Chancellor George Osborne is to deliver a second Budget on 8 July following the Conservatives’ win in the general election.
It is often suggested that the first budget of a government in a parliamentary five year term is the time to set the pace and delivery of any unwelcome changes given the manifesto promises.
There is a clear sense of austerity building and this Budget is unlikely to be friendly! There are some clear messages in what we can read from the Queens speech.
It seems that the tax relief on pension contributions for 45% tax payers is going to be curtailed it may well go beyond this but the message is clear to attract full tax relief make pension contributions ahead of 8 July.
The triple lock on VAT, National Insurance and Income Tax is to be enacted into legislation. Whilst politically driven, the mechanics of this are likely to provide some interesting aspects. There are of course other taxes whose rates may well change not least CGT which at 28% is below the average rate over the past.
One can also expect that the scope of taxes could change not least variations to the application of National Insurance.
There remains some consternation that some reliefs are too generous and give rise to unacceptable behaviours. Further anti avoidance on entrepreneurs’ relief seems possible. Whether some forestalling of potential change is worthwhile will depend on the sensitivity of each case but triggering a disposal that might otherwise fall after 8th July may be worthwhile.
We would not be surprised to see some further curtailment of the advantages of non dom status. This was of course sensitive in the pre election period and whilst George Osborne has increased the Remittance basis charge(RBC) and has withdrawn other benefits in over the past 3 years one could expect further changes in the Budget particularly with the flexibility of the RBC.
There seems an expectation that there is a permanent potential to generate tax revenues through closing loopholes as perceived and we have learned to our pain that almost all “corrective ” legislation where it is considered that benefit is being given to a level no longer acceptable has far reaching effect. For example, the changes announced in March of this year to Entrepreneurs’ relief has a significant effect on a number of structures. The aim of the change was clear, the cure however very blunt and catching situations that were never intended. Similarly, it would not be surprising if “collective arrangements” that seek to attract Business Property relief are attacked .
What is clear is HMRC’s ambition to pursue its campaign to collect tax under the APN regime in respect of many schemes as defined. This is extending to far more benign arrangements than may have previously been anticipated. HMRC has issued numerous APNs and is being weighed down by representations by taxpayers querying the basis upon which they have been raised. So far the Courts have been reluctant to give much sympathy to taxpayers’ proceedings.
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