Robert Black – Landed Estates and Agricultural Specialist.
With the Polling Stations opening on the 4th July, I am increasingly being questioned by clients on what the likely taxation impact of a new Labour government is if they win the next General Election and whether they should make changes now.
Well let’s look at what has been said, the party has ruled out increasing rates of income tax, NI, corporation tax and VAT stating they have “no plans” for further tax increases and that the party’s plans requires no additional tax to be raised.
A Labour government hopes to raise tax revenue via five main areas:
- Closing further non-dom tax loopholes and investing in reducing tax avoidance (£5,230m)
- Applying VAT and business rates to private schools (£1,510m)
- Closing carried interest tax loophole (£565m)
- Increasing stamp duty on purchases of residential property by non-UK residents by 1% (£40m)
- Windfall tax on oil and gas giants (£1,200m)
Reducing tax avoidance schemes has long been on the agenda of HMRC and would certainly raise tax revenue if achieved. However, by their nature such schemes are complex and hard to identify. I believe such schemes are a correct target to be tackled but I wonder how a new government will tackle these differently to achieve the desired outcome. If it is that additional funding and resource is required to administer this, where is this coming from in the meantime?
VAT on school fees is a very hot topic and may sway the vote of the public. Whilst from an economic point of view there could be a significant tax revenue generated from the proposal, the social impact is unknown. It is unlikely that a significant drop out of private school will occur for those already in the system, however, it may deter those looking to place their child if finances are tight. As a result, the impact could be that private schools become more exclusive and state schools may need to accommodate further pupils. If this is the case and net revenues are not quite as high as anticipated due to state school reinvestment, where will the additional revenue be generated?
From a client perspective, well-structured family wealth will usually include a trust structure which can utilise a child’s personal allowance and basic rate band. It is likely that an increase in such structures will be desired to combat the increase in school fees and effectively neutralise the cost.
If the above revenue streams do not meet the requirements as hoped by Labour, this leaves inheritance tax and capital gains tax open to change.
Early planning for inheritance tax can often significantly reduce exposure or completely wipe a client’s exposure upon death. Gifting and IHT reliefs can often reduce IHT to nil, therefore it is likely that these could be reviewed if IHT changes were to be imposed to further generate revenue.
With food security on the agenda of most parties it is likely that any changes to IHT will have to bear in mind the impact to the agricultural industry. Agricultural Property Relief is a vital relief and the removal of this relief without fully understanding the impact could be disastrous to the industry. As such I do not believe that a government will remove this relief but there will likely be changes to other areas.
Regarding capital gains tax, again there are many reliefs available which could be altered. Speculation around the removal of Private Residence Relief on the sale of the taxpayer’s main home have been floated. With 63% of people in England and Wales owning their own home, this would be a significant and unpopular change but significant revenue stream.
It is likely that if capital gains tax were to be altered there would be a combination of relief withdrawal / alteration and a change in the rate of tax (likely aligned to income tax rates). Agricultural land sales could be highly impacted by such a change. Many capital gains on agricultural land sales are calculated using a 31 March 1982 base cost thus generating large gains due to current land values. If reliefs or rates are altered many could see large tax bills. If such changes were implemented it would be hoped that rebasing would occur to a more recent date compared to 31 March 1982!
So where does this leave clients asking what the likely impact will be? Well, firstly the full impact is unknown, but changes will occur. During such time proper planning is essential to ensure correct measures are in place and full understanding is achieved prior to structural changes.
Is it worth making changes now? Potentially, if you have plans which you want to implement regardless of whether an election was called then these are still worth exploring.
