Now that the result of the General Election is known, what tax measures can we expect from the new government?
The Conservative Party’s manifesto, and other announcements made at the time of the 2015 Budget, indicate that the new government’s plans include the following changes (as well as a number of more technical measures that had already been announced before the election).
The income tax personal allowance will be increased to £12,500 over the course of the Parliament. At some point the allowance will be linked to the national minimum wage (NMW), with the effect that an individual working 30 hours per week at the NMW will pay no tax.
The facility for individuals to transfer £1,060 of their personal allowance to their spouse or civil partner where the higher earner is a basic rate taxpayer, which came into effect on 6 April 2015, will continue. The transferable amount will rise annually at least in line with the personal allowance.
Income tax and national insurance rates and thresholds
There will be no increases in the rates of national insurance or income tax, nor any lowering of the thresholds at which they apply. The threshold for the 40% higher rate of income tax will rise to £50,000 by the end of the new Parliament.
A £1,000 tax-free personal savings allowance will be introduced from 6 April 2016 (£500 for 40% taxpayers, and nil for 45% taxpayers).
Class 2 national insurance contributions for the self-employed will be abolished and Class 4 contributions reformed to introduce a new test as regards eligibility for benefits
Tax relief on pension contributions for people earning more than £150,000 will be reduced.
The lifetime allowance for pension contributions will be reduced from £1,250,000 to £1 million with effect from 6 April 2016.
The manifesto indicated that a Conservative government would give individuals the freedom to use their pension savings as they want and pass them on tax-free. This appeared to be a reference to the legislative changes already made in 2014 and 2015 rather than a promise of further changes, but clearly the maintenance of the new regime is now put beyond doubt by the result of the election.
The new government will introduce a transferable main residence allowance of £175,000 per person. The intention is that, together with the existing transferable £325,000 nil-rate band, this will enable a couple to transfer a home worth £1 million to their children tax-free.
The manifesto stated that a Conservative government would ‘increase the annual tax charges paid by those with non-domiciled status… and continue to tackle abuses of this status.’ The first part of this statement appears to refer to the increases that were made by this year’s Finance Act and took effect from 6 April 2015, rather than being a promise of further changes. The promise to tackle abuses may refer to the consultation document published on 22 January 2015 that proposed introducing a minimum three-year claim period for the remittance basis. Moore Stephens’ representations on this document, available here
, argued strongly that a minimum period was inappropriate, and that the proposals were based on a misunderstanding of how the remittance basis works in practice. In addition press reports have indicated that the Chancellor is considering in particular the status of non-doms who were born in the UK.
Individual Savings Accounts (ISAs)
From Autumn 2015 a new Help to Buy ISA will be introduced for first-time homebuyers, with a government supplement to savings.
The government will continue with its plans for a system of ‘tax-free childcare’, which has already been legislated for and is due to be launched in Autumn 2015. This is not, strictly, a tax measure. The government will provide a 25% ‘top up’ to certain savings made by parents for childcare, which in economic terms has the same effect as giving relief for childcare expenditure at the basic rate.
A Conservative government will aim to help local authorities keep council tax low and will ensure that residents can continue to veto high rises via a local referendum.
Corporation tax rates
The new government intends to maintain the most competitive business tax regime in the G20. Comparisons with other jurisdictions are not straightforward, because in many countries tax is levied on companies at both a national and local level. In broad terms, this aspiration means that (barring changes elsewhere) the government must maintain (or reduce) the 20% rate that the UK shares with Russia (where 20% is the maximum combined federal and regional rate), and with Saudi Arabia and Turkey.
The new government will set a new, ‘significantly higher’, permanent level for the Annual Investment Allowance. This currently stands at £500,000 but is due to revert to £25,000 from 1 January 2016.
The manifesto referred to the tax incentives for films, theatre, video games, animation and orchestras that the Coalition government had introduced (though, strictly, the relief for orchestras has not yet been introduced). It indicated that a Conservative government would continue these reliefs and expand them when possible.
The bank levy will remain in place. The manifesto also stated that a Conservative government would restrict the ability of established banks to set off past losses against profits, but this measure has in fact already been enacted in this year’s Finance Act.
The government also proposes to make customer compensation costs of banks non-deductible for corporation tax purposes.
Changes will be made to allow farmers to smooth their profits for tax purposes over five years, rather than two years as at present, to take account of income volatility.
The new government will continue with the existing review of business rates, with a particular emphasis on improving the position of small firms. It will also consult on the introduction of a business rates relief for local newspapers in England.
Employers’ national insurance
Having abolished employers’ national insurance contributions for the under 21s in the previous parliament, the new government intends do the same in 2016 for young apprentices under 25.
Value added tax
The rate of VAT will not be increased.
Tax avoidance and evasion
The new government will continue to ‘crack down on tax evasion and aggressive tax avoidance’.
The manifesto indicated that a Conservative government would ‘continue to lead the world on tax and transparency’ and ‘lead international efforts to ensure global companies pay their fair share in tax’. It will ‘ push for all countries to sign up to the Extractive Industries Transparency Initiative, review the implementation of the new international country-by-country tax reporting rules and consider the case for making this information publicly available on a multilateral basis.’ It will also ‘ensure developing countries have full access to global automatic tax information exchange systems’.
The new government will establish the Office of Tax Simplification on a permanent basis and expand its role and capacity.
The new government has various plans to extend taxing powers to the constituent countries of the United Kingdom, including giving English MPs a veto over the rate of income tax in England, once the equivalent decisions have been devolved to Scotland.
Business tax team
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