The 12th December is getting closer and, although we can’t be sure who will end up in Number 10, we can be sure that they will introduce changes to tax policy. It is not unusual for any new government to implement significant tax policy changes at the start of its term in office, well away from a subsequent election. Although changes are more likely to be introduced from a Budget date or the start of a particular tax year, we have been asked whether there is any action taxpayers should consider taking now.
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. The points below might be worth thinking about.
- Consider advancing income where possible so that it arises prior to the election or the new Government’s Budget. Several parties are proposing measures that would increase the tax payable on various forms of income. This may only be worth considering in respect of income that would otherwise have been taxable for this tax year, due to the disadvantage of paying tax up to a year early. For example:
a. Accelerating dividend payments from family companies or private companies;
b. Accelerating interest payments on loans to family companies or unlisted companies;
c. Accelerating dividend payments from family unit trusts or open-ended investment companies;
d. Accelerating business income to access a different rate of corporation tax. This 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 maintain the existing corporation tax rate of 19% while several of the other parties wish to increase the rate of corporation tax to up to 26%.
- Consider crystallising capital gains early, for example, by making disposals before the election or the new Government’s Budget. This may help to ensure a lower rate of capital gains tax or the availability of current reliefs and exemptions, in particular entrepreneurs’ relief, which has been highlighted as in need of reform in both the Conservative and Labour manifestos. Any disposal may be best left until the very last minute as it may be possible in some circumstances to take advantage of the bed and breakfast rules to reverse the tax position if need be in thirty days.
- For trusts, consider earlier income or capital distributions.
- Consider making gifts to make use of currently available inheritance tax reliefs. This needs to be balanced against the risk of needing to wait 7 years before any potentially exempt transfers would not be subject to inheritance tax when alternative arrangements, such as purchasing shares that qualify for Business Relief, could be more beneficial.
- Anti-avoidance will continue to be focused on, regardless of the outcome, and taxpayers with complex affairs may wish to review these.
The above list is not meant to be exhaustive and will vary depending on each taxpayer’s particular circumstances. Clearly, it is impossible to forecast which tax policies will be in place in the next few months, so any action taken now involves risk. Tax changes introduced by the new Government may be backdated to April 2019, may come in part way through the tax year or indeed at a later date. Action before the election or Budget could therefore still be caught by a subsequent change.
It is important to discuss any actions you are considering with your tax adviser in order to understand the full implications.