If the budget turned out to be a damp squid, the much feared tax day to follow, soaked that squid in soaky wet stuff, gave it a wet duffle coat to wear, and copious water to drink.
Sat fearing the worst for Capital Gains Tax, potential Inheritance tax changes and alterations to the tax an owner pays on selling their business, the day was as exciting as a three year old cream cracker.
What was the detail? Strap yourself in for an exciting read.
The biggest potential impact is that of alterations to the tax administration.
Alterations to tax administration
In simple terms, businesses and individuals could find themselves having to pay two year’s tax in one year. Quite how they believe that will help the economy is beyond me. That simply ensures businesses will freeze and stop the circulation of that capital and more.
That easily creates a nervous sentiment that slows cogs in a watch. Every cog has its role, irrespective of how big it is, and pouring water on them to rust loses time.
The treasury has suggested (after 30 consultations and updates) to change the timing of tax from 2024 onwards so that tax is paid in real time. The intention is to pull this in with the plan to ‘make tax digital’.
Super.
Holiday lets also came under fire, but that makes sense. There are second homes that apply for business rates relief even though their property is not really let out as a business i.e. it is really just a second home. There is actually no current requirement to prove they are rented out commercially, so this is likely to change.
The final report on business rates will be published in Autumn.
Tax day beneficiaries
On Inheritance Tax (IHT), there will be reduced requirements for form filling for those estates that fall significantly under the IHT threshold of estates (c90%).
Social enterprises are happy. These are businesses that are changing the world for the better. Whilst they make a profit, they reinvest or donate that to make positive social change.
Divine Chocolate, Well Grounded, The Women’s Organization and We Make Places CIC are examples of such social enterprises which create opportunities of employment for many who are marginalized.
Currently they contribute over £60 billion to the economy, employ over 2 million people and have positive social and environmental impacts.
The investor receives 30% tax relief up front, whilst investing into businesses that have a social impact. This was due to end in April 2021 but it has received an extension until 2023.
Quite why this isn’t left open ended like other schemes where the gains and profits go to organisations rather than positive societal change is a tad beyond me. Actually, maybe it isn’t.
Extending this will now allow a flow from investors who were previously worried about its future, and gives the government and those lobbying from the enterprises, time to come up with solutions.
Tax avoidance under the spotlight
Tax avoidance schemes have come under scrutiny again. These are schemes that ‘fangle’ up cute ideas to stretch out ways of skirting around tax laws. These schemes have caught out many a footballer.
Over the last thirty two years many have been put in front of me with ‘we have received counsel’s opinion on this and…”.
I’m normally well down the road at that point but they still exist and investors who have been convinced to go into them sit with the stress of awaiting the revenue arriving to test their case. That would put me off my chips.
Proposals are: to allow HMRC to freeze a promoter’s assets to pay the penalties; close down companies that offer the schemes, and disqualify Directors; and to provide support to society to be able to identify and avoid such schemes.
Adding to this perhaps, is the proposal to ensure a clear understanding of what tax advice and tax advisers are, and in turn, ensure they have professional indemnity insurance, an insurance all financial advisers have had to have, but not all tax advisers.
In the meantime, Capital Gains Tax and Pensions have been left alone. For how long we don’t know, so be sure to use the allowances gifted to you.
If you have a question about this topic, you can talk to Peter on 01872 222422 or email [email protected] or WWFP.net.
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About the Author / Peter McGahan
Peter McGahan is Chief Executive Officer of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.
