So what does the Election result mean for Taxation?

tax policies general electionIf someone had asked me before the vote the likely outcome for the General Election, I can safely say I would not have guessed at a Conservative government supported by the DUP! I am, however, comforted that I would be in good company.

The key question is: “What is this result, along with the forthcoming Brexit negotiations, likely to mean in terms of taxation policy for the UK over this period?”

I have to admit that I have not read the DUP manifesto, but as much of the Conservative manifesto will need to be put on hold I am not sure that any of the published material to date gives us very much confidence as to the direction of travel. What is currently being discussed is a tension between the DUP’s stance on benefits in general, whether the alliance and the election result as a whole will lead to a softening of the Brexit negotiations, and what impact these measures will have on the Conservatives’ time-table to balance the UK budget deficit.

Under an alliance between the Conservatives and the DUP, it would seem unlikely that the pensions ‘triple lock’ would not remain in force, but the Conservative promise not to increase income tax, VAT or National Insurance under the tax lock put forward as part of the 2015 Budget must surely be at risk. Whilst there has been a general consensus that there would be no increase in VAT, which as this is a European tax must be a sensible decision while the Brexit negotiations are ongoing, there must be less certainty on the income tax or National Insurance thresholds. Indeed, whilst Philip Hammond remains as Chancellor, he may well wish to reintroduce the increase in National Insurance which he put forward in the last Budget and then had to withdraw.

Corporation tax

Companies may undoubtedly heave a sigh of relief not to be faced with an increase in corporation tax rates to 26%, as proposed under the Labour manifesto, I can look forward to the reduction in corporation tax to 19% as recently introduced.

For individuals

There still remains a large degree of uncertainty not least for those who are non-domiciled for UK tax purposes.  After a long period of consultation, draft legislation was published which would introduce a ‘deemed domiciled’ status for all taxes when an individual had been resident in the UK for 15 out of the last 20 years, and a number of consequential changes for UK returners and offshore trusts. These were left on the cutting floor in the preparation of the pre-Election slimmed-down Finance Act. This is particularly concerning as many of these provisions are scheduled to commence with effect from 6 April 2017, and as of today we have neither confirmation nor a time-table as to their introduction.

Making Tax Digital

Another casualty of the pre-Election Finance Act was the plan for making tax digital. Whilst there can be no doubt that HMRC will wish to proceed with these provisions as they form a fundamental plank of their future strategy in ensuring greater compliance for all UK taxpayers, it can only be hoped that there will be some softening of the time-table to allow greater testing of the provisions and a broader information campaign and training for both taxpayers and advisers alike.

Other news

It also seems unlikely, given the slim majority the Conservative/DUP alliance would have, that the so-called “Dementia Tax” would be included as a provision in this parliament. However, that does not change the fact that planning for long-term care costs remains a significant concern for individuals and governments alike.

Those earning over £80,000 may be heaving a sigh of relief that they might not be expecting an automatic increase in the tax they would pay under a Labour government, and whilst it is anticipated that the increase in the personal allowance to £12,500 will be supported by all parties, there is less certainty about the increase in the higher rate threshold or, indeed, whether further changes would be introduced at the point of which the personal allowance is lost. Whilst a major reform of pensions legislation may also be beyond the scope of an alliance government, we may see further restrictions on higher rate tax relief on such contributions.

With articles published yesterday fearing a reduction in the global economic outlook for the next few years, there can be no doubt that if the UK budget deficit is to be bridged, some form of increased taxation will be on the agenda.

Linda Warner, Tax Partner

 

Post by Linda Warner