The last Budget was nearly 18 months ago and since then, we have had three different chancellors after the unexpected resignation of Sajid Javid. The early years of a new Parliament are usually a good time to make radical changes and many are predicting significant tax changes on March 11.
Rather than increasing headline tax rates, it is understood that the Government are considering the abolition or restriction of many tax reliefs that we have got used to relying on. This would also have the effect of increasing tax revenue, and has its sights set on those who are better off.
Inheritance Tax in the Spotlight
We are expecting major changes to inheritance tax (IHT) in the March Budget following two reviews by the Office of Tax Simplification (OTS) and also a report by an All-Party Parliamentary Committee. IHT is perceived as a complicated tax with numerous fairly trivial reliefs and exemptions. Currently, the tax only generally applies to transfers on death and gifts within 7 years of death. The All-Party Parliamentary Committee suggested that there should be a 10% charge on gifts during someone’s lifetime after an annual exemption (suggested £30,000) has been exceeded.
A more radical suggestion was the abolition of Business Property Relief (BPR) and Agricultural Property Relief. These currently allow you to pass on a family business or farm without paying IHT. The OTS also recommended a review of BPR so it may be worth considering bringing forward the transfer of all, or part of, your family businesses.
More routine IHT planning would be to make use of the current £3,000 annual allowance. Gifts up to £3,000 each year are exempt from IHT. If you haven’t used your £3,000 allowance from 2018/19 you can make gifts of up to £6,000 before 6 April 2020 without the gift being liable to IHT. Also, consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT. Gifts out of your surplus income are not subject to IHT if properly structured. We can assist you in keeping the necessary documentation so please get in touch if required.
Further changes to Entrepreneurs’ Relief?
Another tax relief that may be further restricted or even abolished is CGT entrepreneurs’ relief. This relief allows business owners to pay just 10% CGT on the first £10 million of capital gains when they dispose of their business. This was previously tightened up in the Autumn 2018 Budget.
When first introduced, the relief only applied to the first £2 million of gains. This limit, however, has been increased twice since 2008 to the current lifetime limit so the relief may be limited again in the March Budget.
You can find out the full details of the budget with our special newsletter out on 12th March. Sign up for it here.
March 2nd, 2020