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UK Autumn Statement may target tax reliefs

Monday, 23 November, 2015

The Chancellor's Autumn Statement will appear on Wednesday 25 November.

Most tax specialists predict it will be harsher than previously expected, for two reasons. First, the Chancellor has failed to push through legislation cutting tax credits for the low-paid, so that the public sector borrowing requirement will be larger than planned at the time that Finance Bill (no.2) 2015 was drafted. Second, that Finance Bill also contained a measure precluding increases in the rates of the three main taxes – income tax, national insurance contributions and value-added tax – for this parliament. This means the public sector borrowing requirement (PSBR) deficit cannot be reduced by adjusting these rates.

This has led to predictions of 'stealth' rises in other taxes, such as capital gains tax, and cuts in some of the more expensive tax reliefs.

Some of those being suggested are:

  • The Treasury has been conducting a review of deeds of variation (DoVs) for reducing inheritance tax, and the results of this initial review may be announced this week, possibly including tighter controls on the use of DoVs. However, such a measure would require lengthy consultation and is unlikely to be included in next year's Finance Bill. 'Any changes announced will need to be carefully managed', commented Lucy Brennan of Saffery Champness.
  • Cuts in business and agricultural property relief from inheritance tax. 'If such cuts were applied it would be essential to retain the tax relief to reward long-term ownership of inherited business and agricultural assets', commented Tina Riches of Smith & Williamson. 'Tax relief could then be targeted at supporting longer term business succession.'
  • Reduced tax relief on pension contributions, perhaps the introduction of a flat rate of pension tax relief.
  • Restrictions on tax relief for interest paid by businesses, and perhaps restrictions on entrepreneurs' relief from capital gains tax.

Several measures have already been consulted upon and are certain to be announced in the statement. These include the removal of the remittance basis of tax for long-term non-doms and the inclusion of their UK property in the inheritance tax net, although again this will not take effect until April 2017. Changes to dividend taxation will also be firmed up, affecting owners of small businesses who take their income as dividends. There are also likely to be further anti-avoidance measures.

Sources