Get involved! Send photos, video, news & views. Text WILTS TIMES to 80360 or email us
Capital taxes policy - a brighter future ahead?
2:16pm Friday 4th February 2011 in Land & Business
The government’s new approach to making tax policy announced in June 2010 at the same time as the emergency budget is very welcome. There have been three major steps forward: • Step 1 was the publication, also in June 2010, of a consultation document on tax policy making, the response to which was later published in December 2010.
• Step 2 was the setting up by the government of the Office of Tax Simplification (OTS) to provide advice to the Chancellor on simplifying the UK tax system.
• Step 3 was the government’s request announced on 8 November 2010 for the OTS to carry out a review of all tax reliefs, allowances and exemptions for businesses and individuals across all taxes. The OTS is also separately tasked by the government with reviewing small business taxation.
The government’s stated aim is to restore the UK tax system’s reputation for predictability, stability and simplicity. The key strategies by which the government proposes to achieve these objectives are: 1. Making fewer piecemeal changes to tax legislation; 2. Greater consultation on proposed measures; and 3. A commitment to confirm the majority of tax changes and publish draft legislation no later than three months before the tax year in which they are to come into effect.
Given the roller coaster of changes over the last decade, such as the preowned asset income tax charge, the removal of capital gains tax taper relief and the alignment of the inheritance tax treatment of trusts, the new approach is opportune.
Why does the new approach matter to land owners?
It matters, because if the government manages to deliver on the above objectives, it will significantly help land owners and their advisers to undertake long term planning, particularly with succession for the next generation.
The new approach should be viewed in the wider context of the UK’s global competitive position and the government’s commitment to driving down tax evasion and avoidance. Under the recent Comprehensive Spending Review, notwithstanding cuts elsewhere, the government allocated an extra £900 million to HMRC to deal with tax evasion and avoidance with the aim of collecting an additional £7 billion in tax revenues per year by 2014/15.
The OTS has said the government will take a more strategic approach to avoidance and it will be interesting to see to what extent the OTS review of tax reliefs takes into account proposed measures to strengthen and improve the Disclosure of Tax Avoidance Schemes (DOTAS) regime.
A particular example is the publication on 27 July 2010 of the consultation document on Disclosure of Inheritance Tax Avoidance as it relates to trusts. There is a question of policy as to whether the perceived avoidance should be addressed by the imposition of a DOTAS system for gifts into trust. An alternative approach would be to look at the inheritance tax changes that came into force on 22 March 2006 which led to a 20% entry charge on gifts into trust, compared to the continuance of Potentially Exempt Transfers (PETs) for outright gifts to individuals. The existing policy favours outright gifts to the disadvantage of those who wish to provide for minors or other vulnerable individuals by way of holding assets in trust.
Perhaps an indication of the approach the OTS intends to take is that in its interim report on tax reliefs published in December 2010, its preliminary list of key reliefs to be reviewed included PETs. Other inheritance tax reliefs, such as agricultural property relief and business property relief, were included in a secondary list which would be reviewed if there were time.
The OTS preliminary list of key reliefs to review goes beyond inheritance tax and, for instance, anticipates covering a diverse range including private residence relief, entrepreneurs’ relief, enterprise investment schemes, venture capital trusts, capital allowances and farmers’ averaging of profits.
Just because a relief, for example, private residence relief, is under review, it does not necessarily mean it would be removed.
Where do we go from here?
A simpler, more transparent regime of tax reliefs would benefit not only HMRC, but also individuals and their advisers. Whilst the possible removal of any reliefs raises concerns, the greater clarity and long-term stability promised by the new tax policy approach should mean a brighter future for tax and estate planning.