Given the resounding Conservative victory, now is the time for The Chancellor Sajid Javid to radically reform the British tax system.
Nimesh Shah, a partner at Blick Rothenberg said, “The Chancellor has already described himself as the ‘low tax guy’ now is the time for him to reform and simplify the British tax system, but tax rises should not be ruled out.”
He added, “The Conservative Manifesto was very light on announcements about tax, with the party opting for an ultra-cautious approach to avoid any pre-election controversy or scrutiny.”
“However, following their significant majority at last week’s election, it’s very likely that there will be a number of new policies introduced. After all, Sajid Javid had previously promised widespread reform and simplification to the UK’s tax system.”
Nimesh added, “The only noteworthy announcement contained in the Conservative Manifesto was an £868 increase to the National Insurance primary threshold to £9,500. This will provide an annual £104 tax cut across the board for workers. Their ambition is to increase the threshold to £12,500, which would align to the current Personal Allowance, and provide an annual tax cut of £464.”
He continued, “They pledged no increases to Income Tax, National Insurance and VAT under their Triple Tax Lock. However, given the significant spending pledges, I would expect to see an indirect change to at least one of these taxes to deliver the much-needed revenue to the Treasury. For example, it could be possible to limit the benefit of the NIC threshold increase by introducing a tapering for higher earners, much like how the Personal Allowance is reduced when a person’s income is above £100,000. If something like this is introduced, it could mean a NIC increase of up to £1,500 for higher earners.”
“Their Manifesto made no mention of Boris Johnson’s leadership pledge to increase the basic rate Income Tax band to £80,000. This measure would have given a tax cut of up to £6,000, but was estimated to cost the Treasury around £8bn. This proposal could be re-tabled by Sajid Javid at the next Budget, and in doing so would represent a significant tax giveaway for higher earners.”
Nimesh said, “Conservative Governments over the last nine years have regularly tinkered with property taxes. They had already announced that they would introduce a 3% Stamp Duty Land Tax (SDLT) surcharge on non-UK residents purchasing UK residential property. Foreign buyers would face an SDLT charge of up to 18% when purchasing UK residential property, but the rate for commercial property remains unchanged; the top rate applying to commercial property is 5%. Domestic buyers will face no impact, but this measure could be a pre-cursor to a future reform of SDLT and there could be a rate cut for property purchases up to £1m, and SDLT completely abolished on property transactions up to £500,000.’
He added, ‘It should not be forgotten that UK property investors are facing a raft of tax changes from 6 April 2020, with the restriction to mortgage interest relief taking full effect, new limitations to Main Residence Relief and the Capital Gains Tax (CGT) payment shortening to 30 days. It is difficult to see what more Sajid Javid may do with Property Tax, as property has become one of the most heavily taxed asset classes.’
‘There are a number of facets of the Personal Tax system which urgently need to be addressed, such as the High Income Child Benefit Charge, the tapering of the Personal Allowance for earnings over £100,000 creating an effective rate of tax of 60% and issues facing the self-employed community with proposed changes to the IR35 rules. It would have been too much to expect for these pressing issues to have been addressed or even acknowledged in this Conservative Manifesto, at the risk of facing any criticism, but the Chancellor could well look to address these matters in a future Budget.’
Nimesh said, ‘Whilst Labour’s Manifesto threatened to abolish Entrepreneurs’ Relief, the Conservatives said that they would commission a review – this was likely to be in response to Labour’s proposal to abolish the relief completely, but my expectation is that any review will not offer any significant changes.’
Other possible changes Sajid Javid could consider in light of the resounding victory are:
- Make the personal savings allowance available to everyone and fixed at the same level – this is the amount of interest a person can receive tax free, but is not available to higher rate taxpayers.
- Abolish the marriage allowance and increase the personal allowance to £15,000 – this is where one person can transfer 10% of their personal allowance to their higher earning spouse, provided they are a basic rate taxpayer, (although Labour’s proposal to do the same in their manifesto was met with very strong criticism).
- Merge income tax and National Insurance into a single tax system.
- Remove the tapering of the pensions annual allowance when an individual earns more than £150,000 of income.
- Remove higher rate and additional rate tax relief on pension contributions – this has long been rumoured and would raise significant upfront revenue for the Treasury.
- Have a single capital gains tax rate – there are currently five different rates that could apply when a person realises a capital gain.
- Abolish the inheritance tax main residence nil rate band and replace it with a higher overall nil rate band, which has not increased for over 10 years.
- Abolish inheritance tax completely, as suggested at the most recent Conservative Party conference, and introduce a lifetime gift allowance (similar to the US system).
- Harmonise the SDLT systems for residential and commercial properties.
- Reduce corporation tax to 15% (although Boris Johnson repealed the reduction to corporation tax to 17%, which was due to take effect from April 2020).
For more information, please contact Nimesh Shah.