Restricted by the continued need for support in response to covid-19, the Budget contained few changes for private clients. None of the major tax rates were changed, although the increased rate of corporation tax may impact FIC planning, and the freeze to income tax rates and thresholds will raise revenue. Further changes will be needed in future and we may get an indication of the direction of travel in the command paper on 23 March.
Despite the usual rumours ahead of the Budget, for the second year running there were very few changes announced and very few clues given of how the current peacetime record-breaking government borrowing will be repaid.
This could change on 23 March when the government will publish a command papertitled Tax policies and consultations(Spring 2021). No indication was given in the Budget or the various Budget documents of what these consultations might cover, but given the very evident need for the government to find a way of paying for the various covid-19 related support measures, it seems likely that tax raises and perhaps even new taxes (such as a wealth tax) will be included.
Given that several of the measures announced in the Budget were recommended in the Treasury Committee’s report ‘Tax after coronavirus’, perhaps some clues can be found in the other recommendations not yet adopted.
Reform to the capital taxes seems highly likely: the Treasury Committee believes there is a ‘compelling case’ for reform and the OTS published reports on IHT in 2019 and CGT in 2020.
A comprehensive review and reform of the tax system, as suggested by the Treasury Committee, seems less likely; any such reform which simplified the increasingly complicated tax system is to be welcomed.
Allowance and threshold freeze
The income tax personal allowance and higher rate threshold will be increased as planned in line with the CPI in April 2021, and then frozen at that level until April 2026. Similar freezes will occur for the CGT annual exempt amount, the inheritance tax thresholds and the pensions lifetime allowance.
Property taxes
As widely anticipated the SDLT holiday is to be extended from 31 March 2021 to 30 June 2021, meaning the threshold at which SDLT begins to apply will remain at £500,000 until that point. This will be followed by a further period from 1 July 2021 to 30 September 2021 during which SDLT is not payable on consideration below £250,000, after which things will return to normal.
However, the previously announced SDLT surcharge for non-UK residents will take effect from 1 April 2021, so for such individuals the extension is likely to be of limited use. The surcharge will be 2% above the existing rates. A simplified test of residence applies for individuals, who will be non-UK resident for these purposes if they have spent less than 183 days in the UK in the 12 months preceding the transaction. The test for trustees is more complex, depending on the type of trust, whilst for companies the corporation tax residence rule applies. In some circumstances, UK resident close companies will be non-resident for the purposes of the surcharge, so acquiring UK residential property through companies will continue to require navigation through a complex web of rules.
The ATED charge for residential properties held via companies (and other ‘envelopes’) will increase by 0.5% from 1 April 2021 in line with the CPI.
Family investment companies
The rate of corporation tax will increase to 25% from April 2023, and despite the accompanying introduction of a small profits rate (at the current 19%), will affect family investment companies (FICs). In recent years, these have been a popular tool for individuals looking to take advantage of the different rates for corporate and personal income tax, and whilst the increased rate is still significantly below the income tax rates, the decision to exclude them from the small profits rate might hint at the beginning of a range of measures designed to reduce their appeal.
HMRC powers and tax compliance
The government will proceed with the introduction of a new financial institution notice (FIN) which will allow HMRC to request information about a specific taxpayer from financial institutions without the need to obtain approval from the tribunal or taxpayer consent. Notice of the request must be given to the taxpayer, unless the tribunal approves otherwise.
FINs can apply either to domestic taxpayer enquiries or as a method of providing information requested by another tax authority; the need to meet international standards for providing information is given as a justification for the measure. It is interesting to see that HMRC considers this change is required given the wealth of information that the CRS provides – perhaps showing that mass data exchange is no match for targeted specific enquiries?
Another previously consulted upon measure which is now being introduced is the reform of penalties for late submission and late payment of tax. This will apply to self-assessment taxpayers with business or property income over £10,000 from 6 April 2023, and from 6 April 2024 for all other self-assessment users.
The new late submission regime will be points-based, and a financial penalty will only be issued when the relevant threshold is reached. The new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is.
The usual mention of combatting avoidance, evasion and non-compliance included the government’s response to the consultations on ‘tackling promoters of tax avoidance’ and the follower notice penalty regime.
Meanwhile, disguised remuneration schemes and the loan charge continue to be in the spotlight – being specifically mentioned as one of the areas which will be funded as part of a further £180m investment in HMRC.
Restricted by the continued need for support in response to covid-19, the Budget contained few changes for private clients. None of the major tax rates were changed, although the increased rate of corporation tax may impact FIC planning, and the freeze to income tax rates and thresholds will raise revenue. Further changes will be needed in future and we may get an indication of the direction of travel in the command paper on 23 March.
Despite the usual rumours ahead of the Budget, for the second year running there were very few changes announced and very few clues given of how the current peacetime record-breaking government borrowing will be repaid.
This could change on 23 March when the government will publish a command papertitled Tax policies and consultations(Spring 2021). No indication was given in the Budget or the various Budget documents of what these consultations might cover, but given the very evident need for the government to find a way of paying for the various covid-19 related support measures, it seems likely that tax raises and perhaps even new taxes (such as a wealth tax) will be included.
Given that several of the measures announced in the Budget were recommended in the Treasury Committee’s report ‘Tax after coronavirus’, perhaps some clues can be found in the other recommendations not yet adopted.
Reform to the capital taxes seems highly likely: the Treasury Committee believes there is a ‘compelling case’ for reform and the OTS published reports on IHT in 2019 and CGT in 2020.
A comprehensive review and reform of the tax system, as suggested by the Treasury Committee, seems less likely; any such reform which simplified the increasingly complicated tax system is to be welcomed.
Allowance and threshold freeze
The income tax personal allowance and higher rate threshold will be increased as planned in line with the CPI in April 2021, and then frozen at that level until April 2026. Similar freezes will occur for the CGT annual exempt amount, the inheritance tax thresholds and the pensions lifetime allowance.
Property taxes
As widely anticipated the SDLT holiday is to be extended from 31 March 2021 to 30 June 2021, meaning the threshold at which SDLT begins to apply will remain at £500,000 until that point. This will be followed by a further period from 1 July 2021 to 30 September 2021 during which SDLT is not payable on consideration below £250,000, after which things will return to normal.
However, the previously announced SDLT surcharge for non-UK residents will take effect from 1 April 2021, so for such individuals the extension is likely to be of limited use. The surcharge will be 2% above the existing rates. A simplified test of residence applies for individuals, who will be non-UK resident for these purposes if they have spent less than 183 days in the UK in the 12 months preceding the transaction. The test for trustees is more complex, depending on the type of trust, whilst for companies the corporation tax residence rule applies. In some circumstances, UK resident close companies will be non-resident for the purposes of the surcharge, so acquiring UK residential property through companies will continue to require navigation through a complex web of rules.
The ATED charge for residential properties held via companies (and other ‘envelopes’) will increase by 0.5% from 1 April 2021 in line with the CPI.
Family investment companies
The rate of corporation tax will increase to 25% from April 2023, and despite the accompanying introduction of a small profits rate (at the current 19%), will affect family investment companies (FICs). In recent years, these have been a popular tool for individuals looking to take advantage of the different rates for corporate and personal income tax, and whilst the increased rate is still significantly below the income tax rates, the decision to exclude them from the small profits rate might hint at the beginning of a range of measures designed to reduce their appeal.
HMRC powers and tax compliance
The government will proceed with the introduction of a new financial institution notice (FIN) which will allow HMRC to request information about a specific taxpayer from financial institutions without the need to obtain approval from the tribunal or taxpayer consent. Notice of the request must be given to the taxpayer, unless the tribunal approves otherwise.
FINs can apply either to domestic taxpayer enquiries or as a method of providing information requested by another tax authority; the need to meet international standards for providing information is given as a justification for the measure. It is interesting to see that HMRC considers this change is required given the wealth of information that the CRS provides – perhaps showing that mass data exchange is no match for targeted specific enquiries?
Another previously consulted upon measure which is now being introduced is the reform of penalties for late submission and late payment of tax. This will apply to self-assessment taxpayers with business or property income over £10,000 from 6 April 2023, and from 6 April 2024 for all other self-assessment users.
The new late submission regime will be points-based, and a financial penalty will only be issued when the relevant threshold is reached. The new late payment regime will introduce penalties proportionate to the amount of tax owed and how late the tax due is.
The usual mention of combatting avoidance, evasion and non-compliance included the government’s response to the consultations on ‘tackling promoters of tax avoidance’ and the follower notice penalty regime.
Meanwhile, disguised remuneration schemes and the loan charge continue to be in the spotlight – being specifically mentioned as one of the areas which will be funded as part of a further £180m investment in HMRC.
