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Taxpayers may wish to consider whether there is any action they should take before the election or before the new government’s first Budget.
However, it is difficult to forecast what tax policies will be in place in the next few months given the moving polls and uncertainty over who will be in power. Tax changes introduced by a new government could also be backdated to April 2017, may come in part way through the tax year or indeed at a later date. Action before the election could therefore still be caught by a subsequent change.
While actions should be driven by commercial and other non-tax factors, deferring or accelerating decisions so as to take action in advance of potential changes to the tax legislation may be worth considering, subject to the above. Of course, backdated forestalling provisions may make steps ineffective.
If you are considering taking any key decisions, you may as ever wish to discuss these with your tax adviser.
Provisions left out of Finance Act 2017 – we expect, although we cannot be certain, that the significant provisions dropped from what is now Finance Act 2017 will become law under a further Finance Act later this year. Many of the provisions were expected to be effective from 1 or 6 April 2017 but it is now not clear which date these provisions will take effect from. Retrospective legislation could mean a start date in April 2017. Another option would be a start date of 6 April 2018 with transitional rules for taxpayers who had taken action relying on these changes already being in place. Anyone considering taking decisions in these areas in the meantime should be aware of the uncertainty and carefully consider the implications of any possible outcome. Deferral may be worth considering. Measures affected include:
Some specific points to consider, particularly around the timings of transactions, are set out below.
Business income – whether you should defer or accelerate business income to access a different rate of corporation tax will depend on both your ability to choose when to take income and your view of the election outcome. A Conservative led government plans to continue to decrease corporation tax rates while a Labour-led one wishes to reverse reductions. However, none of the proposals appear imminent and therefore action may not need to be taken urgently.
Start-ups – generally the parties appear to want to further support start-ups, although there is a dearth of exposure of specific tax policies, apart from a potential attack on incorporations. Where there is otherwise no urgency to move forward a business, deferring significant decisions until after the election and any Budget may be beneficial, apart from on incorporations.
Incorporation – if a business is considering incorporating, it may be worth considering accelerating the decision although advice should be taken on this.
Restructuring – if relief for loan interest is limited, raising finance by way of equity may become more attractive for the future.
Disposal of business – with few firm proposals in this area, business owners may wish to await further developments. However, with CGT in the firing line with both Labour and the Liberal Democrats, some may wish to consider accelerating the timing of intended disposals of businesses and business property to try to help ‘bag’ the use of entrepreneurs’ relief and current CGT rates.
Consider international business structures – where different tax jurisdictions are used, it may be sensible to review cross-border trading arrangements – this is likely to be relevant after the election too, especially as Brexit approaches.
Non-doms - planning for non-doms is especially tricky given the uncertainties around the timing of dropped provisions. Deferring further action may be the safest route. In particular, non-doms may wish to defer any remittances from mixed funds or disposals of assets where rebasing may apply. However, some anti-avoidance provisions have been deferred until a later date and some action may be considered now - ongoing planning should be considered in any event for non-doms, regardless of the outcome of the election.
Accelerating income – it is not unusual for any new government to make most tax rises at the start of a parliament. With Labour and the Liberal Democrats both proposing tax rate increases and the Conservative’s staying quiet on this point, although there were hints of the triple lock on tax rates going, taxpayers may wish to consider accelerating income where possible so that it is earned prior to the election and potentially taxed at a lower rate, although at an earlier date. Care should be taken where this results in the loss of personal allowance or slipping into the 60% marginal rate band as this may inadvertently increase the overall tax rate.
Timing of future income – a Labour government would lower the threshold for the 45p additional rate to £80,000. This would increase to 67.5% the effective marginal tax rate when the personal allowance is gradually withdrawn on income exceeding £100,000. Individuals may wish to reconsider when they take income or use allowances to minimise having their top income taxed in this marginal rate band, as the band below and the band above will be at lower rates of 40% and 45% respectively.
Crystallising gains – while CGT rates are low, making disposals before the election or a new government’s budget may help to ensure a lower rate of CGT or the availability of current reliefs and exemptions, although tax may be payable at an earlier date.
Pension contributions – while the manifestos did not contain significant reform to tax relief on pension contributions, individuals may nonetheless wish to ensure they have utilised their current annual exemptions at their marginal tax rates before the election or forthcoming budget as this area of tax is constantly changing.
Lifetime gifts – IHT has not been a hot topic in most of the manifestos. However, it may still be a good time to consider whether any lifetime gifts should be made now to make use of currently available reliefs.
Anti-avoidance rules – it is possible that the tax regime will be tightened up further and taxpayers with complex affairs may wish to review the way they run their affairs. Trusts appear to be a particular target, especially where there is a perceived misuse, and should be reviewed appropriately with a view to getting their house in order.