Changes in UK tax rules usually apply from the start of the tax year, 6 April following the Budget. They are made law in the Finance Act which is normally passed by Parliament in June or July following but backdated to 6 April.
The exception to this has been when a change increasing tax payable is announced, this can often be applied from the day of the Budget. This year the date of the Budget has been brought forward to November.
So what are the implications for taxpayers of this new timetable, leaving a 5 month gap between the announcement of proposed changes and the start of the next tax year?
Given the Government’s commitment to increase NHS funding by £20 billion per year, few commentators are expecting a giveaway Budget. Slow productivity growth and the continued uncertainty of Brexit negotiations, also make it more likely that any changes will result in taxpayers paying more, not less, in taxation.
While pre Budget speculation is only that, a number of candidates for reform have emerged. These include increases to capital gains tax, cut to a standard rate of 10% and top rate of 20%* by George Osborne, so currently half the rate of income tax.
Speculation is also rife around a possible reform of pension savings tax relief. Currently relief is given at the top rate of tax paid by the saver. One option being considered by the Treasury is to cut this to a rate slightly above the basic rate of tax. This would mean a bigger tax break for basic rate taxpayers but a cut for higher and top rate taxpayers.
A rate of relief, different to the rate of tax actually payable, may be difficult to administer and would cause problems for payrolls and pension schemes which operate a salary sacrifice. A simpler reform may be to cut the annual allowance for pension savings, which for most taxpayers is £40,000 per year.
Those with taxable income above £150,000 have a lower allowance already, on a sliding scale, which reduces to £10,000 once income exceeds £210,000. So far few top rate taxpayers have felt the full impact of this, as they have been able to soak up allowances from earlier years. This tax year will be their last chance for many high earners to use more than the reduced allowance. One suggestion is that the threshold could be lowered, so that more taxpayers would be subject to a reduced allowance.
For the time being, ISA savings appear to be unlikely to be affected, as these seem to be a favoured savings incentive of the current Government. However one influential think tank has campaigned for pension savings to be treated like ISAs, with no tax relief given on savings made but then no tax on income withdrawn from them later.
We will have to wait till November to find out what the Chancellor has in store for us but higher and top rate taxpayers and those with significant capital gains may be well advised to start their tax planning early this year, leaving it till the New Year could be too late.
Director of Public Policy, LEBC
LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser.
*The rate charged on gains arising from residential property sales are 18% to 28%.Back to News & Views