Many had understandably termed this the most important election in decades, but even then no one predicted what has actually just happened – the complete recasting of the British political landscape. It can only be assumed that a number of parties will be rethinking their approach, federalism might come to pass after the SNPs near total victory in Scotland, and the night saw very significant gains for the Conservatives across England. Pollsters will meanwhile be asking themselves some rather serious questions. Amidst this turmoil and excitement, what of the rather more sober subject of tax?
Calmer times for non-doms?
We had been promised the abolition of the remittance basis by Labour, but the Conservatives will not entirely leave non-doms alone. Their manifesto promised increases in the remittance basis charge and to ‘continue to tackle abuses of the system’; expect in particular a reform of the rules under which non domicile status can be inherited and the treatment of long-term non-dom residents in the UK.
If there are to be changes to the remittance basis, let us hope that the opportunity to ensure the remittance basis operates in a rational and straightforward way is seized. This would be good for simplification, for certainty and for precluding ongoing debates about further reform.
Less complexity in property taxes?
After reports of a serious stagnation in the upper end of the property market, with many not purchasing properties for fear of the implications of mansion tax under either the Labour or the more lenient Liberal Democrat proposals, those living in moderately sized London properties (or small apartments in some areas) will breathe a sigh of relief.
A Mansion Tax is no longer in contemplation, what can’t be ruled out though is some review of the council tax system or a revaluation of properties. This has been too thorny an issue to be grappled by any recent administration, it really does seem more sensible to simply review council tax rather than layer additional complex property taxes upon the already increasingly complex system of property taxation in the UK. Hopefully any review would be combined with a general overhaul to increase supply of and access to housing, so that those increasingly left behind by price rises are properly considered, on the other side of the equation.
Given the Conservative promise not to increase direct tax rates (although do note this specifically does not preclude stealth rises such as frozen personal allowances) higher earners will be pleased that the 50p income tax rate is not in the offing again.
That said, pensions remain a big issue, and higher rate tax relief will be progressively restricted for those earning between £150,000 to £210,000 per annum so that only up to £10,000 of pension contributions will get tax relief rather than £40,000 as is currently the case and will continue to be the case for those earning less than £150,000 a year.
High earners may wish to consider advancing regular pension contributions to ensure that they benefit from the full tax relief before the new Government’s first budget.
Family homes and IHT
A key Conservative manifesto promise (to be funded by the restriction of pension tax relief) was to take family homes worth up to £1m out of IHT, which will be welcomed by many, especially where values have increased to an unexpected and unprecedented extent, reflecting general property price increases in some areas. Equally, this can lead to distortion where there have not been such price increases, so that increasingly large properties are exempt.
What remains to be seen is whether there will be a more thorough review of the IHT nil rate band set at £325,000 per person, or £650,000 between a couple and whether the Conservative policy to raise the nil rate band to £1 million for all assets, or even abolish the tax entirely will be revived in a Conservative majority Government.
It remains to be seen whether there will be an ’emergency’ budget, there will have to be a second Finance Bill this year and it seems fair to expect an announcement in short order, if for no other reason than this will not be a coalition government, and the Conservative party will have unfettered access to the statutory cookie jar. No doubt consultations or promises of consultations on a range of topics, quite possibly including IHT, pensions and domicile, will be announced.
It seems, and is certainly to be hoped, that taxpayers can look forward to rather more certainty than they had dared expect, and although one should certainly anticipate changes to the remittance basis, pension tax relief these may now be a rather less radical than had been imagined.