Blick Rothenberg

BR Blog: Summer Budget Update

06.07.2015

Written by: Bob Rothenberg

Bob Rothenberg shares his thoughts ahead of this week's Budget announcement.

 

On Wednesday, George Osborne will deliver his first Conservative Budget and second for 2015.  It will be a pivotal moment for the Conservative Government and would appear to set the agenda for the next 5 years. We thought it might be interesting for you to hear our thoughts on possible tax policy announcements in the Summer Budget.



Pensions

It is highly likely that tax relief on pension contributions could be reduced for someone earning more than £150,000. Only last week, the Government issued a briefing paper about restricting pension relief. The suggestion is that tax relief will be restricted by progressively reducing the annual allowance at a rate of £1 for every £2 earned over £150,000, until it reaches £10,000. In this situation, someone earning £210,000 or more could face £13,500 in lost tax relief.


Capital Gains Tax ("CGT")

The Conservatives pledged in their manifesto that they would not increase income tax, National Insurance and VAT. Some have therefore suggested there could be an increase in CGT and this could be aligned to income tax. CGT generates so little for the Treasury that this would seem fruitless but could happen. Alternatively, a single rate of CGT of say 25% (i.e. blending the current 18% and 28% rates) would help to simplify the current CGT regime. Hopefully there will be no overnight rate change as there was in 2010! In addition, following the introduction of CGT for non-UK residents selling UK residential properties, this could be extended to other UK assets, such as shares in UK companies, leading to generating more tax revenue for the Treasury.

 

Property
There was a strong rumour before the March Budget that Principal Private Residence relief for properties sold over £2 million could be abolished/restricted. This may be an unusual policy for a Conservative Government but residential property continues to be a significant source of revenue for the Treasury.

The Conservatives proposed in their manifesto to increase the inheritance tax (‘IHT’) threshold to £1 million by introducing a transferable £175,000 main residence allowance (‘available for all but the richest’) – comments over the weekend by George Osborne suggest that this measure will definitely happen. It would be simpler to have an increase to the current nil rate band to £500,000.  The current nil rate band of £325,000 has been fixed since 2009 so an increase is long overdue, especially given rising property prices.

The Annual Tax on Enveloped Dwellings (‘ATED’) could be increased again, as it was at the Autumn Statement. The ATED has generated more tax revenue than the Government originally estimated. Given that the ATED charge affects a minority of UK based taxpayers (overseas investors are more likely to be affected), it is a simple measure to increase the tax. This again points to residential property being a positive source of tax revenue.

Non-domicile changes
We are hopeful that there are no substantive changes to the non-domicile regime, where there have been constant changes since 2008. The remittance basis charges could be increased again, but more likely, there could be a change to prevent someone born in the UK to inherit the non-domicile status but this should be subject to a detailed consultation. The principle of domicile is a legal concept, but has a bearing on a person’s tax position, so any change to prevent the inherited status will have to be accommodated into tax legislation.