Yesterday saw the Treasury release 30 updates and consultations that will set the stage for the future of tax in Britain. Dubbed the (not so imaginative but nevertheless clear) title of Tax Day, we take a look at the key take home points and discuss what they mean going forward.
One major thing to note from the announcement is the lack of suggestions surrounding reforms to pension relief tax. There were calls for the Chancellor to avoid a major overhaul of the pension tax system, with providers claiming that a removal of higher rate tax relief would be felt across the board, potentially most by those in public sector defined benefit schemes.
However, for now that seems to have been put on a back burner, along with any big changes to Capital Gains Tax (CGT) or self-employed taxation. Regarding business rates, the Treasury did not publish any significant reform plans, instead claiming it would set out its final conclusions in the autumn.
That said, there were changes that may prove important for some.
Tax bills move forward
Under proposals, millions of people and small businesses may see their self-assessment and corporation tax come forward after 2024. The government has suggested that moving the timing of these payment brings the system closer to working in real time and that it is seeking “to explore some of the benefits and challenges of more timely payment of tax”. However, the proposal has been acknowledged by the financial secretary to the Treasury as a significant change that would potentially see those eligible paying two years’ worth of tax in a single year.
Tougher stance on avoidance schemes and second homes
The consultations also highlighted the Treasury’s efforts to clamp down on tax avoidance schemes. These include new plans to close down promoters of such organisations accompanied with the freezing of assets. It is hoped that these measures will ensure that liabilities are paid and reduce the amount of lost revenue that is currently experienced through tax avoidance channels.
Owners of holiday lets will also be affected by the proposals, as the government plans to tighten tax legislation for those with second homes. Currently, those with genuine holiday lets are able to apply for business rates instead of paying council tax when the owner declares that the property is intended to be let for 140 days per year. However, the issue with the current system is that no checks are required to verify this. Under the government’s proposals, legislation to tighten the rules would ensure that those applying for business rates, and therefore business rates relief, are not exploiting the process.
Red tape reduction for Inheritance Tax
For grieving families, a sure to be welcome proposal published yesterday is the simplification of Inheritance Tax (IHT). Under the suggestions, form completion will no longer be required for estates whose value is significantly under the IHT threshold after probate. The change will affect over 90% of non-taxpaying estates.
Reporting regulations are set to be amended later this year with the change coming into effect from 1st January 2022.
In addition to this, a temporary provision allowing those providing an IHT return with a printed, rather than handwritten signature will be made permanent.
So, all in all, a rather mixed bag when it came to yesterday’s Tax Day.