Julia Rosenbloom, Partner in our private client tax team, is calling on the government to bring about changes in the upcoming Budget that would see greater wealth transfer to younger generations, and greater tax equality for unmarried couples.
A much needed boost for the housing market
- Action is needed to unlock activity and provide a much needed boost for the UK housing market. The Chancellor should abolish higher rates of Stamp Duty Land Tax, including the 3% surcharge, to encourage more activity and make buying a home a more achievable dream for those who live in areas that have seen house prices soar.
- A range of measures is also needed to support people who run residential property portfolios, of all sizes, as a substantial business. Tax changes in recent years have made these businesses less sustainable and are ultimately adding further strain on the housing market through increased rents. The Chancellor should consider a range of measures to reduce the tax burden on these businesses:
- Aligning the Capital Gains Tax rates - residential property is subject to 18% and 28% tax rates for individuals, compared to other asset classes which are subject to much lower rates of 10% and 20%.
- Removing of the 3% Stamp Duty Land Tax surcharge, which greatly increases the stamp duty payable by those who own multiple properties.
- Applying Inheritance Tax Business Property Relief where the property investments are made as part of a substantial business.
- Abolition of the restriction on interest deductions so that interest on borrowings is fully relievable as a cost of the business.
Boosting lifetime gifting to support the next generation
- As younger generations are increasingly squeezed by higher rents, unachievable house buying dreams and stagnant wages, the ‘bank of mum and dad’ has become more important than ever. The current tax system puts people off gifting during their lifetime, which is often when the next generation most needs financial help. There are several measures the Chancellor could implement that would make an immediate difference:
- It should be easier to make gifts without crystallising Capital Gains Tax by extending deferral reliefs so that they apply to more types of assets. Doing this would allow people to defer Capital Gains Tax to a later date when they are more able to pay it.
- Stopping lifetime inheritance tax charges on large transfers into trusts, which are yet another blocker to passing wealth to the next generation during lifetime.
- Making the rules simpler to understand and it easier for people to transfer wealth to the next generation. The Residence Nil Rate Band, introduced in 2017, should be scrapped. It has proved far too complicated. Instead, the Chancellor should increase the main nil rate band (NRB), as this would prove universally beneficial and easier to understand. If each individual were to be given an additional £175,000 of NRB, this would take the total to £500,000 per person (or £1 million per married couple/civil partners).
Simplifying pension allowances to encourage increased saving
- It’s no secret that people are not saving enough for retirement. Retirement planning should be simpler in order to encourage people to do it. The Chancellor should take this opportunity to simplify the pensions rules. In particular, the method of calculating the capped pension allowance is far too complex, leaving people baffled by the best way to save for their future. It should be sufficient just to have the lifetime cap and allow people to make annual contributions more flexibly and without reference to annual limits.
Greater tax equality for unmarried couples
- We live in a time of much greater equality, but many unmarried couples and those who are “romantically unattached” are still unfairly paying higher taxes. Where an individual is unmarried or not in a civil partnership, the rules should be changed to allow them to elect for one individual to effectively qualify for ‘spouse exemptions’, meaning the nominated individual could qualify for inheritance tax ‘spouse exemption’ and would enjoy “no gain/no loss transfer’ status to that individual such that the transfer would not result in a liability to Capital Gains Tax. This would ensure greater equality for all families and individuals across the UK.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.