Philip Harrison, consultant for The Wilkes Partnership.
What’s keeping you busy at work?
As a solicitor advising private individuals, my workload is a blend of capital taxes planning for UK clients and more general advisory work for the internationally mobile. Much new work is motivated by fears of UK tax rises to pay for the government response to covid-19.
If you could make one change to tax law or practice, what would it be?
I’d abolish the inheritance tax residence nil rate band (RNRB) and make a corresponding increase in the ‘normal’ nil rate band. The RNRB is ludicrously complex and arbitrary in its targeting.
What tax changes are on the horizon?
It probably won’t be until early next year now, but I expect increases in personal tax rates and the curtailment of current reliefs. In particular, CGT tax is under review by the OTS, and it is widely expected that rates will rise. It could be that ‘business asset disposal relief’ (formerly entrepreneurs’ relief) will be abolished entirely, even though it was only in March when the lifetime allowance was slashed from £10m to £1m.
Comment on a recent change in tax.
The reduction in the entrepreneurs’ relief lifetime allowance was accompanied by wide-ranging ‘anti-forestalling’ rules designed to catch transactions that intended to crystallise a pre-Budget disposal for CGT purposes in respect of transactions which would not actually complete until after Budget day (11 March 2020).
The anti-forestalling rules were targeted at strategies using companies, such as sales under unconditional contracts that were entered into before 11 March but were not completed by that date (and would perhaps never have been completed). Such contracts could not be subject to ‘conditions precedent’ but might nevertheless be subject to ‘conditions subsequent’ (as a result of which they might fall away if the accelerated disposal proved unnecessary). Strategies dependent on the disapplication of CGT rollover relief for share-for-share exchanges were also countered.
It remains to be seen whether wide-ranging anti-forestalling rules are used where there are fundamental rate changes, rather than for changes to a specific relief.
Is inheritance tax a likely target?
Inheritance tax is widely seen as the most unfair tax in the UK system and a form of double taxation. It has also been under review by the OTS. A fundamental change is possible, perhaps to a regime more like ‘capital acquisitions tax’ in the Republic of Ireland which focuses on transferees of wealth rather than transferors. The tax threshold for each transferee in respect of gifts or inheritances depends on the proximity of their relationship to the transferor.
In the more immediate future, the curtailment of IHT reliefs which are no longer seen as ‘fair’ or productive in terms of their original objectives might be anticipated. Is 100% business property relief for trading companies listed on the alternative investment market (AIM) still justifiable? AIM stocks are treated as unquoted for tax purposes, and so 100% BPR is potentially available for all shareholdings after two years’ ownership (sometimes less). In the days of the unlisted securities market (AIM’s predecessor) and the early days of AIM itself, incentives were needed for investment, but there are now some major stocks on AIM. It might be reasonable to question the fairness of an IHT advantage which is not shared by investors in the main market. Those concerned about the loss of relief should consider transferring their shares into trust.
What do you know now that you wish you’d known at the start of your career?
How lucky we were in 1986 to have clear, concise tax legislation drafted by superb parliamentary draftsmen! The quality has steadily declined, and the style can now best be described as ‘computer programming school’. Alongside the decline in quality, we’ve seen a massive increase in volume. The two are not unrelated: ‘I apologise for the long letter, I didn’t have time to write a short one.’
Philip Harrison, consultant for The Wilkes Partnership.
What’s keeping you busy at work?
As a solicitor advising private individuals, my workload is a blend of capital taxes planning for UK clients and more general advisory work for the internationally mobile. Much new work is motivated by fears of UK tax rises to pay for the government response to covid-19.
If you could make one change to tax law or practice, what would it be?
I’d abolish the inheritance tax residence nil rate band (RNRB) and make a corresponding increase in the ‘normal’ nil rate band. The RNRB is ludicrously complex and arbitrary in its targeting.
What tax changes are on the horizon?
It probably won’t be until early next year now, but I expect increases in personal tax rates and the curtailment of current reliefs. In particular, CGT tax is under review by the OTS, and it is widely expected that rates will rise. It could be that ‘business asset disposal relief’ (formerly entrepreneurs’ relief) will be abolished entirely, even though it was only in March when the lifetime allowance was slashed from £10m to £1m.
Comment on a recent change in tax.
The reduction in the entrepreneurs’ relief lifetime allowance was accompanied by wide-ranging ‘anti-forestalling’ rules designed to catch transactions that intended to crystallise a pre-Budget disposal for CGT purposes in respect of transactions which would not actually complete until after Budget day (11 March 2020).
The anti-forestalling rules were targeted at strategies using companies, such as sales under unconditional contracts that were entered into before 11 March but were not completed by that date (and would perhaps never have been completed). Such contracts could not be subject to ‘conditions precedent’ but might nevertheless be subject to ‘conditions subsequent’ (as a result of which they might fall away if the accelerated disposal proved unnecessary). Strategies dependent on the disapplication of CGT rollover relief for share-for-share exchanges were also countered.
It remains to be seen whether wide-ranging anti-forestalling rules are used where there are fundamental rate changes, rather than for changes to a specific relief.
Is inheritance tax a likely target?
Inheritance tax is widely seen as the most unfair tax in the UK system and a form of double taxation. It has also been under review by the OTS. A fundamental change is possible, perhaps to a regime more like ‘capital acquisitions tax’ in the Republic of Ireland which focuses on transferees of wealth rather than transferors. The tax threshold for each transferee in respect of gifts or inheritances depends on the proximity of their relationship to the transferor.
In the more immediate future, the curtailment of IHT reliefs which are no longer seen as ‘fair’ or productive in terms of their original objectives might be anticipated. Is 100% business property relief for trading companies listed on the alternative investment market (AIM) still justifiable? AIM stocks are treated as unquoted for tax purposes, and so 100% BPR is potentially available for all shareholdings after two years’ ownership (sometimes less). In the days of the unlisted securities market (AIM’s predecessor) and the early days of AIM itself, incentives were needed for investment, but there are now some major stocks on AIM. It might be reasonable to question the fairness of an IHT advantage which is not shared by investors in the main market. Those concerned about the loss of relief should consider transferring their shares into trust.
What do you know now that you wish you’d known at the start of your career?
How lucky we were in 1986 to have clear, concise tax legislation drafted by superb parliamentary draftsmen! The quality has steadily declined, and the style can now best be described as ‘computer programming school’. Alongside the decline in quality, we’ve seen a massive increase in volume. The two are not unrelated: ‘I apologise for the long letter, I didn’t have time to write a short one.’
