While recognising that the richest taxpayers pay an increasing percentage of UK tax revenue, the Chancellor in this Budget has made it clear that the Government aims to ensure that wealthy individuals will have to be far more transparent in their tax affairs and pay the tax that Parliament intends. The government has therefore announced substantial investment in anti-avoidance measures.
Initial comments from Tina Riches, national tax director at Smith & Williamson:
On buy to let properties, the Chancellor’s announcement that the tax relief on mortgage interest would be reduced over a period of four years to the basic rate came as no surprise, given the recent campaign to level the property playing field. This, coupled with the rest of the basket of property tax measures, will tip the balance away from buy to let. Phasing in changes over several years will help owners adjust to the new environment, which includes abolition of the arbitrary yet simple 10% ‘wear and tear allowance’, yet allowing costs incurred, which may be very welcome.
However, the changes may encourage landlords to hold their buy to let properties in a corporate structure – particularly with the promise of reduced rates of corporation tax down to 18% – which further increases the difference between income tax and corporation tax.
The increase in the rent a room allowance after a period of almost 20 years, will help households wishing to rent out spare bedrooms and provide a welcome home for individuals unable to afford a home of their own.
Tax avoidance and aggressive tax planning remains in sharp focus. HMRC is to demand strict compliance to tightened rules, with investment in its teams, which are to further track down tax avoidance and aggressive tax planning. Business owners and HNWs will be specifically targeted.
The introduction of direct recovery of debts and greater use of naming and shaming for those who transgress the rules will be used.
Top earners will feel the pain with a mix of reductions to tax relief and a hardened approach to ensure the wealthiest continue to pay the lion’s share of tax. The Chancellor announced targeted measures to curtail tax avoidance and reductions in pension tax relief. Coupled with the tightened rules for landlords with buy to let properties, individuals will need to put an even greater emphasis on tax compliance.
The Chancellor’s review of the non-domicile rules was also expected, with the obvious promise to look at curtailing the non-domicile advantages for those who have been resident in the UK for 15 out of the last 20 years through to the more obscure intention to stop those born as UK domicile from leaving the UK and returning as non-doms. Whilst a potential abuse of the rules, this latter measure is unlikely to affect many non-doms although the change in inheritance tax rules where properties are held through companies may have a significant impact, requiring many non-doms to review their affairs.
Critics of the additional inheritance tax nil rate band, due to be applied to private properties handed down through families, highlighted that this would provide a disincentive to downsizing, have been listened to, with the formal announcement that downsizers would not lose the additional allowance. While welcome for later life buyers, this seems likely to bring in a layer of complication that a simple increase in the nil rate band would have avoided.
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 writing.The tax treatment depends on the individual circumstances of each client and may be subject to change in future.
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