With the general election fast approaching some taxpayers may be turning their thoughts to the post election landscape and the associated tax implications.
Clearly, each party has its own particular objectives and has indicated a number of areas in which changes might take place. The purpose of this article is to highlight some of those areas and suggest steps that a taxpayer might like to consider.
Income Tax Rates
There does seem to be a general concern that if the Conservatives are not elected, any other government might consider an increase in the higher rates of income tax. This being the case, if you are thinking of paying bonuses or dividends it may be worthwhile accelerating the payment so that it falls before the election date.
Capital Gains Tax
Whilst there are no specific plans as such, there are concerns that the entrepreneurs’ relief regime may be restricted, whether by the rate of tax applicable being increased or the upper limit on qualifying gains being reduced. For those taxpayers who may have a sale in mind but do not anticipate completing before the general election, it may be worthwhile putting in place arrangements to trigger a disposal before the election. The sort of arrangement that could be contemplated would be for the taxpayer unconditionally to contract to sell the shares at market value to an interest in possession settlement, but with provision for the contract to be rescinded in appropriate circumstances. There are a great number of points to consider in connection with this, including the issue of stamp duty reserve tax where shares are involved and whether the general anti abuse rule would be invoked by HMRC. As an alternative, the taxpayer could either gift or sell the shares to a suitable individual at an under value. Whilst this would constitute a potentially exempt transfer for inheritance tax purposes, provided the shares are qualifying shares, any gain can be held over.
Pensions have been the subject of significant change in the last few years. The Labour Party has recently announced a policy to cut tuition fees which would be funded by reducing the tax relief on pension contributions for higher earners. The current annual contribution limit is £40,000. Subject to cash flow constraints and annual limit (including any unused annual limit from the last 3 years), a taxpayer may want to consider topping up his pension.
For those looking to crystallise Inheritance Tax APR or BPR claims for estate planning purposes, making disposals by gifting assets into trust before the end of the tax year should be considered.
As a final point, any proposed planning must be carefully constructed. In particular, the timing of any steps should be carefully considered as when a contract is entered into can make a significant difference to the outcome.
For further information about pre election tax planning and the options for you and your business, please contact Niall Murphy.