Last week, I started to look at what the wonderful world of tax might look like in the aftermath of a Conservative victory at the forthcoming general election. We have had a bit of an insight with the recent publication of the Conservative Year for Change document, A New Economic Model.
In that document, the role of the tax system (along with infrastructure, education) is highlighted as being a way of helping to build a new British economic model and improving the competitive position of British business.
Last week, I referred to a recent FT summary of the changes that we might expect from a Tory Government in relation to key areas of taxation based on what has been said to date.
I will use the FT basis of comparison topped up with what we can take from the “new economic model” (NEM)
document. Needless to say, there are no guarantees that what is summarised will actually come to pass. But then a little excitement and unpredictability is always a good thing. We do, however, have the Tory stated commitment that they will hold an emergency Budget within 50 days of taking office…so another late night is in store for all at Technical Connection.
1: Corporation tax
Pledge to cut main rate of corporation tax from 28p to 25p (reinforced by the NEM). Timing: no explicit deadline Annual cost: £2.55bn (£3.7bn when originally proposed). Funded by cuts to “complex reliefs and allowances”.
2: Small companies’ corporation tax
Pledge to reduce small comp – anies’ rate of corporation tax to 20p from 21p (due to increase to 22p in April 2011). Timing: No explicit timing but likely in emergency Budget. Annual cost: £1.2bn (2012-13 onwards). Funded by cuts to “complex
reliefs and allowances”.
3: National Insurance
Aim: To reverse “at least a part” of the one percentage point increase in NICs coming into effect in April 2011 (David Cameron, January 2010) Timing: Unknown but Mr Cameron said recently he would announce Tory policy on this “way before” the general election. Annual cost: About £7bn. Funded by: Not specified.
4: Small companies’
National Insurance Pledge: Any new business set up in 2010-11 or 2011-12 would pay no employer National Insurance on first 10 employees in its first year of incorporation. NICs would be cut by one percentage point for companies with fewer than five employees
for “at least six months”. Timing: In the first two years of a Conservative Government. Annual cost: £250m for new business tax break, £225m for six months’ NIC reduction. Funded by: Spending cuts worth about £7bn a year, already announced.
5: Income tax
Aim: To abolish 50p top rate of income tax for people with taxable income of more than £150,000 coming into effect in April. The Tories stress they cannot pledge to do this and state in the NEM: “We do not regard the new 50p tax rate as a permanent feature of the tax system.” Timing: 2012 at the earliest. George Osborne has said he will not axe the 50p rate while his proposed one-year public sector pay freeze is in force. Annual cost: £2.4bn. Funded by: Not specified.
Pledge: To recognise marriage more within the tax system. Timing: “Definitely” in the first Parliament. But there is no commitment to disclose what the tax break would be in the party’s manifesto. Annual cost: Unknown. Funded by: Unknown.
7: Inheritance tax
Pledge: To increase IHT threshold to £1m. Timing: In the first Parliament. Annual cost: £1.5bn. Funded by: An annual levy on non-domiciliaries. The Tories flatly reject a December 2009 Treasury costing that estim – ated the levy would generate only £50m to £250m a year
Aim: To reverse the restriction on pension tax relief for people with income over £150,000 due to come into effect in April 2011. The Tories stress they cannot pledge to do this. However, they do state explicitly in the NEM: “We will restore our savings culture and encourage people to save more for retirement…and… over the longer term, we will reverse the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds.” Timing: Not specified – “in a queue” of tax cuts the Opposition party would like to make as and when the public
finances allow Annual cost: £3.6bn Funded by: Not specified
9: Stamp duty for first-time buyers
Pledge: To axe stamp duty on properties valued at less than £250,000 for first-time buyers Timing: No deadline given Annual cost: £220m to
£300m (Treasury estimate, October 2009) Funded by: An annual levy on non-domiciliaries that is also due to fund the inheritance tax break.
Regardless of the likelihood of post-election action taking place, there remains an excellent adviser opportunity to discuss the inevitability of a relatively long period of “tax hardship” – especially for high-income individuals.
This has already generated anger and anxiety, both of which combine to lead to a willingness and openness to take action to reduce the pain.
An opportunity to advise and do business awaits the well informed adviser. This is true for those doing business with clients directly or through other professionals. In both cases, the all-important trust will be secured by demonstrable understanding.