Member Article

Budget will focus on clampdowns, not cuts

George Osborne will do all he can to promote growth but has limited scope for manoeuvre when the budget is given on 20 March, says Stephen Barratt, Private Client Tax Director at accountants and business advisers James Cowper. The problem remains that there is a significant gap between Government spending and tax revenues.

As the Chancellor seeks to turn the economy around whilst maintaining his focus on austerity, areas most likely to be in line for his attention are aggressive tax planning and offshore tax abuses.

As the Government strives to stick to its deficit-cutting pledges after body blows such as the loss of the UK’s AAA credit rating, there will be enormous political pressure on the Chancellor to demonstrate that he has bold answers to the country’s economic challenges. However, it seems highly unlikely that any solution will involve borrowing for growth or generous tax relief measures as the Chancellor focuses on any green shoots he can find.“

Tax avoidance and offshore planning

The coalition will continue to demonstrate how it is getting tough on abusive tax planning and that it has other answers to how it will chisel away at stimulating the economy with what little money there is to spend.

The Chancellor labelled tax avoidance as “morally repugnant” at the last budget and is clearly keen to deter what he sees as abusive tax schemes. Measures against those who aggressively plan their taxes are contained in the draft general anti-avoidance rule (GAAR) that will take effect later this year, and there may be some further tweaking in this area.
“We can also expect more headline-grabbing initiatives to bear down on larger corporates who benefit from offshore tax planning. News about initiatives to stimulate international co-operation could be announced, for example.

Tackling the cost of living

Steps to deal with soaring energy bills could prove extremely popular so are likely to be being considered by Treasury officials,“ said Stephen. “It’s hard to see, however, opportunities to announce good news in respect of other cost of living pressures, with the possible exception of a fuel duty cut. I don’t think the Government will tackle pensions again.

The coalition has already set out its plans for income tax. There will be a 5% cut in the top rate of tax for those earning £150,000 or more to 45% and the personal allowance will increase to £10,000 in 2015/16. Strangely this might see the Treasury benefit from a tax boost as income that has been deferred while the 50% rate continues is taken after 5 April.

Death Tax

Householders could see further developments in respect of Inheritance Tax, which was in the news last month when the Chancellor reversed a previous decision with the announcement that the nil rate band will be frozen at £325,000 until at least 2019. This will see more families caught in the IHT net as asset values appreciate as the general economy recovers and is cause for concern.

If the Chancellor wishes to raise money in this area we could see an extension of the seven year Potentially Exempt Transfer rule to 10 years, so individuals making gifts would have to live longer for no tax to be due at all.

More radically, there has been some debate about the virtues of replacing inheritance tax with an ‘accessions tax’ on charge on the beneficiaries of estates. Under Lib-Dem proposals the tax liability would fall on the person receiving the funds rather than the estate of the deceased. If pursued, this is likely to complicate matters rather than simplify IHT and so would be contrary to the stated drive for simplification.

There might also be changes to Agricultural Property Relief, in line with HMRC’s increasingly vigorous approach to denying it, which would prove very unpopular with the agricultural community.

Stamp Duty Land Tax

Significant changes to Stamp Duty Land Tax (SDLT) could also be on the cards again this year as part of addressing tax avoidance,“ concluded Stephen. “Last year the Chancellor said that he would not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules were found. This was a clear signal of intent and if there have been abuses we can expect him to clamp down on them.

This was posted in Bdaily's Members' News section by James Cowper LLP .