2020 – an uncertain future for tax planning
With the UK teetering on the edge of a general election which could see fundamental changes being made to the country's economic policies, any review of the tax landscape in 2020 must be guided by the measures the parties have pledged in their election manifestos. Ed Cubitt and Christopher Groves from Withers writes
The big theme of Tory messaging over the past months has been about lowering the tax burden – and not just for those at the bottom end of the scale. But the widely publicised promise made by Boris Johnson to increase the higher rate of income tax threshold from the current £50,000 ($64,676) to £80,000 has not crystallised into a manifesto commitment.
Instead, the Conservative election manifesto pledges to freeze income tax, VAT and national insurance rates. In addition to this, the Conservatives have promised to raise the national insurance (‘NI’) threshold to £9,500 next year, with the goal eventually to raise it to £12,500. The current primary NI threshold is already £8,632, so this first increase in the threshold would lead to a modest initial saving for affected taxpayers of around £100.
In contrast, Labour has confirmed its plan to bring in a 50% rate of income tax for those earning over £125,000 (dubbed the 'super-rich rate'), with the current additional rate of 45% kicking in from a new lower level of £80,000.
Johnson had also mooted the idea of bringing the top rate of stamp duty land tax (SDLT) down to 7%. Instead, the Conservative manifesto promises no changes to the current SDLT rates, except to impose a new surcharge on residential property purchases by non-UK residents of up to 3%. This would give a highest possible effective rate of SDLT of 18% for non-UK resident buyers.
Not to be outdone, under Labour's 'Fair Tax Programme', an extra set of policies published after the manifesto on 23rd November, the party promises an offshore company property levy of 20% on purchases of residential property. A levy on second homes used as holiday homes would also be introduced, equivalent to 200% of the current council tax bill for the property.
In addition, councils would be given the power to impose taxes on the owners of properties which have been vacant for over a year. Further reforms to property ownership include an extension of the right to enfranchisement for leaseholders, rent caps on landlords and an increase in transparency in land ownership. Given the already relatively transparent system of ownership of registered land in the UK, this last reform looks like it is aimed squarely at those making use of nominee owners for the purpose of discretion.
Labour also pledges to equalise the tax treatment of capital gains and income, taxing both at income tax rates. In light of the party's promise to introduce a new 50% income tax rate, this policy would see a dramatic increase in capital gains tax rates, the highest of which is currently only 28%.
A Labour government would also clamp down on non-domiciled status, with a promise to scrap the remittance basis of taxation. This would mean current non-domiciled UK residents would face being taxed on their worldwide income and gains on an arising basis. It's possible that the remittance basis could be claimed by those only temporarily in the UK, but there is no indication as to when the ‘temporary’ label would cease to apply.
The Chancellor, Sajid Javid, himself a professed ‘low-tax guy’, had hinted that inheritance tax was on his mind, but no cuts to the tax have been pledged. Labour's expected policy of a lifetime gift tax has not materialised.
Instead, the party has promised to reverse what it describes as George Osborne's inheritance tax cut. This is likely to mean the scrapping of the residence nil rate band, which currently allows married couples to leave (broadly) up to £300,000 extra of inheritance tax-free property to their children or grandchildren in the form of residential property.
As was expected in light of their spending promises, the Conservative party has backed away from some of the hints made about big tax cuts over the past several months, while Labour is proposing a radical shake-up of the taxation system: two strikingly different visions for country proposed by two very different political forces.