The Impact of a New UK Government

Impact of a New UK Government

Following the General Election on 7th May, the Conservatives alone now form the UK government and it is a purely Conservative affair, not a coalition. That means the party’s manifesto is more likely (but not guaranteed) to become reality. It also has implications for what was announced in March’s Budget, but not legislated for in that month’s ‘wash up’ Finance Act.

During the election campaign, the Conservatives promised to legislate to prevent increases to the rates of Income Tax, National Insurance and VAT, which would limit the Government’s ability raise additional tax revenues from these taxes. Whilst this promise covers rates it doesn’t seem to cover the scope of the taxes or the thresholds used.

In light of this, there are some clear dangers that could arise in the hunt for additional revenue:

  • Landlords could see a reduction in the allowable expenses, including the removal of the ability to offset mortgage interest against letting income.
  • Capital Gains Tax (CGT) rates could rise and allowances fall.
  • The extension of CGT to non-residents, in respect of gains made on UK residential property, could be extended to other assets.
  • Personal Allowances could be removed from non-residents.
  • Further tax pressures could come to bear on UK Pensions.
  • HMRC could become even more aggressive in its pursuit of non- resident UK Nationals for Inheritance Tax – this is especially likely given recent statements that they would target non-resident UK Nationals who are claiming Non Domicile Status.
So what does this all mean?

The investment market’s initial reaction has been to jump on the unexpected result. However, the new government will not be in a position to make tax giveaways: the deficit is set to come in at £75bn in the current year and the Chancellor’s aim is to turn this into a surplus by 2018/19. By that time total government borrowing is projected to still be around 75% of GDP.

In this environment, personal financial planning rather than government largesse will remain the primary route to taming tax bills.

If you are exposed to the UK through investments, property or family, or may work in the UK in the future, speak to your AAM financial planner urgently to ensure that you protect your wealth from the UK Government’s need to raise additional revenue.

The Election Manifesto

In their manifesto the Conservatives promised a number of measures as follows:

Income Tax
  • By 2020/21 (the end of the forthcoming Parliament), the personal allowance will rise to £12,500 (the current allowance is £10,600). In practice the Finance Act 2015 has legislated personal allowance increases for 2016/17 (£10,800) and 2017/18 (£11,000).
  • The higher rate threshold will rise to £50,000 (the current level is £42,385). Mr Osborne promised higher rate taxpayers would benefit fully from the Personal Allowance increase, taking the higher rate threshold up to £42,700 in 2016/17 and £43,300 in 2017/18.
  • Of course the Chancellor could (as usual) change this, but the implication is that income tax reductions will be modest until 2018/19.
Pensions

The annual allowance for pension contributions for those with incomes of over £150,000 is set to fall by £1 for each £2 of income in excess of £150,000, down to a minimum allowance of £10,000 at incomes of £210,000 and above. The lifetime allowance is already slated to reduce to £1m from April 2016.

Main Residence Inheritance Tax (IHT) Allowance

The pension annual allowance cut was designed to finance a main residence IHT exemption of £175,000, transferable between spouses and civil partners and phased out at the rate of £1 for each £2 of estate value over £2m (so gone by £2.35m). The effect for a couple is to give a total IHT exemption of up to £1m (2 x [£325,000 nil rate band + £175,000 residence exemption]), assuming they own a home worth at least £350,000. It is unclear how this would operate if the home had to be sold because of a need for long term care.

Non-Domicile

The Conservatives said they would further increase the tax on non-domiciled individuals, but gave no numbers.

Anti-evasion and anti-avoidance

Like the other main parties, the Conservatives pledged to raise a considerable sum (£5bn a year by 2017/18) from anti-evasion and avoidance measures. Also in line with the other parties, they gave very little indication as to how this would be achieved.

UK Budget 2015

In addition to the manifesto, there are still a number of measures left over from the Budget before the election. It remains to be seen whether these will be enacted or replaced with new measures in the first Budget of the new parliament. The outstanding issues include:

Lifetime Allowance

This is set to fall to £1m from 2016/17, with another raft of transitional protections introduced.

Personal Savings Allowance

From 2016/17 this measure would give basic rate taxpayers an allowance of £1,000 for savings income (basically interest, but also offshore bond gains). Higher rate taxpayers would receive an allowance of £500 – worth the same £200 tax saving, but additional rate taxpayers get nothing.

Pension Annuity Sales

This controversial idea is currently out for consultation, but with the Conservatives back in power it may now become a reality from 2016/17.

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd

Source:
www.techlink.co.uk

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