The General Election has produced an unexpected result (to put it mildly!) and our thoughts turn to what this may mean for the UK tax system looking ahead.
During the Election campaign, there were a number of quiet commitments given as the parties tried to differentiate themselves. With no coalition, these manifesto commitments will need to be honoured. This won’t be easy as the economy seems to be weakening. There are the big issues of the European referendum and further Scottish devolution to factor in.
It is widely accepted that the government “deficit” needs to be brought under control. With the election of a Conservative Government, this will mean tackling this at an early stage. This can either be done by cutting government expenditure or raising taxes. My guess is that it will be a combination of the two.
The Government has a slim majority so I would expect measures perceived as unpopular will be brought in earlier – to get them out the way sooner rather than later. There will probably be another Budget in a couple of months’ time. This will be after the Queen’s Speech set for 27th May. This will include measures that the Conservative Government couldn’t bring in with their coalition colleagues before the Election, as well as new measures.
In terms of tax, the Government has said it will not raise headline rates of income tax, VAT or NIC. I would also be surprised if rates of corporation tax or NIC increased. Therefore I would expect to have more legislation to prevent “abusive tax avoidance.”
During the Election, there was mention of reducing higher rate tax relief on pension contributions for the wealthy, meaning those with income of more than £150,000. This was coupled with a promise to provide a higher level of inheritance tax relief for assets passing on death. This seemed to be aimed at the family home, but the detail was not clear.
I would not expect an increase in the higher rate of tax, currently 45%. Indeed, this could even reduce to 40%, although this would be difficult at the same time as cutting benefits. The mansion tax should now not come into effect. Also, the abolition of non-domicile status should now not take place, although higher non-domicile charges are to be levied.
Looking further ahead, devolution in Scotland may lead to diverging tax rates between Scotland and England. Indeed, there may be more devolution in all the countries of the Union, particularly Northern Ireland where the Government may need DUP votes later on in Parliament.
RMT Ref 109/05.15/SL