Budget 2020: Private Client Measures

After waiting nearly 18 months for a Budget, the newly appointed chancellor’s first outing proved to be one of the quietest for years in terms of tax changes for private clients.

It was dominated by the imminent threat of COVID-19 coronavirus and fulfilling pre-election promises about both spending and ‘levelling up’. Detailed tax measures were thin on the ground and, in some ways, this felt like an interim tax budget pending the main event in the Autumn. This Budget was also as notable for what was not in it as what was.

Entrepreneurs’ relief

The most anticipated change was the scaling back of entrepreneurs’ relief to a £1m lifetime limit, with effect from Budget day and taking earlier disposals into account. It had been rumoured that this relief would be abolished altogether, in the light of which this change could be seen as a better result than expected. There are ‘anti-forestalling measures’ to ensure the £1m lifetime cap applies to arrangements entered into before the Budget with a view to circumventing any such changes. Attempts to avoid the reduction in relief, for example by resting on contracts, may therefore prove unsuccessful.

SDLT surcharge for non-residents

A change which had formed part of the government’s election manifesto is the SDLT surcharge on non-resident purchasers of residential property in England and Northern Ireland. This will take effect from 1 April 2021 and will be set at 2%, taking the top slice rate of SDLT for them to 17%. A response to the previous consultation will shortly be published; let us hope that it clarifies the crucial question of how ‘non-resident’ will be defined and when that status will be assessed in the conveyancing process. Where contracts have been exchanged before 11 March 2020 but complete (or are substantially performed) after 1 April 2021, transitional rules may apply, subject to conditions.

Tapering of the allowance for tax relieved pensions savings

Although higher rate tax relief on pension contributions remains untouched, there was some tinkering with the rates at which the annual allowance for tax relieved pension savings is tapered away for individuals, largely to appease doctors and other higher earning public sector workers. From 2020/21 the ‘threshold income’ (above which the taper bites) will be £200,000 and so individuals with income below this level will not be affected; and the annual allowance will only begin to taper down for individuals who also have an ‘adjusted income’ above £240,000. But for those with total income (including pension accrual) of over £300,000, the minimum level to which the annual allowance can taper will reduce from £10,000 to £4,000.

Evasion, avoidance and non-compliance

As ever, the chancellor stressed that he would take further measures to combat tax evasion, avoidance and non-compliance. (I note in passing that ‘evasion’ and ‘avoidance’ have once again been grouped together but, on this occasion at least, ‘planning’ was not mentioned.) In the private client realm these are largely focussed on enhancing HMRC’s powers under the GAAR and the enabler’s regime, whilst also targeting promoters of aggressive schemes. We await details of the precise changes, with some draft legislation promised in July 2020 to take effect from royal assent to the Finance Act 2020/21.

Raising standards for tax advice

Interestingly and perhaps slightly ominously the government is to publish a call for evidence in the Spring on ‘raising standards for tax advice’. They will seek evidence about providers of tax advice, the current standards upheld by them and the effectiveness of the government’s efforts to support those standards, the stated aim being to give taxpayers more assurance that the advice they are receiving is reliable. Whilst attempts to uphold standards are always welcome it is to be hoped that the profession as a whole will not be not scapegoated for the aggressive practices of only a few providers.

Reduction in the PPR ownership period and CGT payment dates

The Budget documents also confirm that some of the measures included in the last government’s draft Finance Bill will go ahead. Those include reducing the final period of ownership exemption for main residence relief from 18 months to 9 months with effect from 6 April. This will coincide with the introduction of a 30-day window for the payment of CGT on disposals of residential property by UK residents (as is already the case for non-residents) enacted in FA 2019. The accelerated payment date might catch some sellers unawares.

But what is the future for inheritance tax?

One notable omission from both the Budget speech and the accompanying documents was any major reference to inheritance tax. Following the Office of Tax Simplification’s review of IHT last year and the recent paper from the All Party Parliamentary Group for inheritance and intergenerational fairness, the rumour mill had been going mad. In particular, there were fears that either or both agricultural and business and property reliefs could be restricted. Thankfully, those did not materialise, which, coupled with the retention of the red diesel rebate for agriculture (including horticulture, pisciculture and forestry) will have been welcome respite for our beleaguered farming communities. But it seems unlikely that IHT will be off the agenda for ever, so maybe this is a subject that will be tackled in the Autumn, by which time we might also have a response to the consultation on trust taxation launched by HMRC in November 2018. If that is correct then the tide could be moving towards more radical reform of IHT, rather than piecemeal changes, although this could still be a long way off.

This article, written by Sue Laing, was first published in the Tax Journal on 12 March 2020