Our Head of Technical Services, Brian Radbone, delves into what we could expect.
After a considerable amount of speculation about a possible raft of personal tax changes in the Budget and the subsequent Tax Day, it seems that the deckchairs are still broadly in the same position on deck – for now. However, the waters are likely to get a bit choppy in the future as recent consultations and calls for evidence show an interest in tax reform which could be introduced over the next few years.
The fixing of the personal allowance and basic rate income tax threshold, at £12,570 and £37,700 respectively, for five years will mean more people (c1.3 million) will become taxpayers, while a larger number (c1 million) will now start to pay higher rate tax. This should raise extra tax of about £8 billion while effectively reducing the personal allowance to its 2014/15 level based on assumed cost of living assumptions over the period.
Likewise, the fixing of the pension lifetime allowance at £1,073,100 will lead to more lifetime allowance charges being levied to the tune of about £1 billion over the period, while the retention of the CGT annual exemption limit of £12,300 should also increase the tax take on capital disposals.
So what seem to be relatively benign measures on the face of it have an increasing impact as time passes – what is known as ‘fiscal drag’, and on a serious scale.
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It now waits to be seen what further changes are introduced in the next few Budgets. Following the publication of the Office for Tax Simplification’s review of CGT, we may see some changes including the removal of the rebasing of an asset’s acquisition cost on death of the owner, a reduction in the annual exemption limit to, for example, £2,000 or the realignment of rates with income tax rates. Tax relief on pension contributions is still to be dealt with, while there may be some reduction in the current advantageous tax treatment of pension death benefits. And while Tax Day did deal with the need to reduce the administrative burden of IHT, we may now also see changes to IHT allowances and exemptions which may include a restriction or removal of the valuable gifts out of normal expenditure allowance.
Of course, events can overtake the best laid plans as we have seen, but the next few years could see some marked changes to our personal tax system.
Key takeaway points
- Recent consultations and calls for evidence show an interest in tax reform which could be introduced over the next few years.
- More people (c1.3 million) are set to become taxpayers, while a larger number (c1 million) will now start to pay higher rate tax.
- In the next few Budgets we may see some changes including the removal of the rebasing of an asset’s acquisition cost on death of the owner.