Quarterly Tax Update – Tax Planning In Turbulent Times
In our latest Quarterly Tax Update Webinar I was joined by my colleagues, Naomi Neville and Jessica Fazzone to discuss the potential tax changes. However, it was all a little uncertain as the final slides and prep could not be completed until after the new Chancellor delivered yet another U-turn in relation to the ‘Mini’ Budget.
Amidst all the political uncertainty, and speculation, there is quite a bit of tax to talk about too! We have tried to make sense of the changes, and what they mean for advising clients, and offer some thoughts on some key tax planning areas which remain important in this unsettled time.
What’s remained of the Mini-Budget?
Two main changes of the ‘Mini’ Budget remain after all the U-turns: the 1.25% extra National Insurance (NICs) will end on 5 Nov 2022, seven months after it took effect, so that the last five months of the tax year will revert to the original NIC rates.
The second is Stamp Duty Land Tax (SDLT), where the changes were effective from 23 Sept 2022, with the increased threshold for paying SDLT on property purchases. It’s now a “permanent change”, not a temporary “holiday”, but who knows how long this will last – so use it while you can!
What’s changed since the ‘Mini’ Budget?
While the 1.25% cut to National Insurance will still go ahead from 6 November as planned, it will not apply to the extra 1.25% charge on dividends, which is now there for the long term. This was a move that Head of Tax, Ashley Hill noted will mean “there is now an even bigger tax gap between those who earn money via dividends vs those who earn via a salary.”
The income tax rate staying at 20%, along with the restored 45% top rate of tax, means the National Insurance change is the only significant cut in the taxes people actually pay from month to month.
We also tried to add some perspective, that many older clients are doing relatively well under the current tax regime. Private pensions and rental income have not been taxed extra, like dividends; and many will have scope to help their families with lifetime gifts, or “giving while living” as it’s been called.
IHT & CGT “stealth taxes”
With Inheritance Tax (IHT) and Capital Gains Tax (CGT) both frozen for the five years until 2026, as a form of stealth tax, the OBR estimate that the tax raised from IHT will increase by one third in the five years to 26/27, from £6.1bn, an increase of over £2bn! That reflects increasing asset values, especially property.
While land may well see some declines in value, with the economic troubles and especially the higher mortgage rates, there have still been some large increases in values in recent years. Many children and grandchildren need help most now, with the rising cost of living, and we need to help clients to gift tax effectively.
During the webinar, we also touched upon the new rules on CGT on separation and divorce, due to take effect from next April. However, this only helps those who separate after 5 April 2023 – which is a real problem for those separating this tax year. Where possible, a delay to the separation date may be sensible planning.
Trust Register considerations
Naomi Neville considered some key planning around businesses and farms, to secure 100% Business Property Relief (BPR), and the new Trust Register (TRS) provisions in regards to partnerships – many of which will need to register on TRS those assets held by one or more partner for the partnership.
We reviewed some of the main benefits of variations, of estates and trusts, and touched on the TRS issue arising, as a variation does not have the two year protection of most Will trusts. This means most cases will need to register a new trust within 90 days of the variation.
International estate planning
Finally, Jess Fazzone looked at some key issues about international estate planning, reminding us that the EU Succession Regulations still apply, even though we have left the EU, with reference to an example. She also touched on the changes to a 25% Corporation Tax rate, which would catch all Family Investment Companies, and the U-turn on IR35s.
Quite a lot of tax packed into an hour long session, it allowed us to reflect some thoughts on where we are now, and where we may be further down the line.
We will now look forward to the Autumn Statement on 17th November to see what the next chapter brings.
A recording of the webinar can be watched here: https://youtu.be/h0Hs9K8TBPw
