Tax Day: impact for individuals and what is still on the horizon

Tax Day: impact for individuals and what is still on

Government responds to two awaited areas of review and confirms it will respond to OTS report on simplifying design of IHT.


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Although trailed in the press, so far there have been no significant announcements in relation to the taxation of wealth. However, change may still be on the horizon with the Government moving forward with recommendations in the Office of Tax Simplification (OTS) First Report on Inheritance Tax (IHT), that dates back to 2018, and confirmation that it will respond ‘in due course’ to the OTS Second Report on IHT. There is also a response to an earlier consultation on the review of trusts which, although on the face of it contains nothing of significance, the Government’s decision to make no changes may actually be significant in itself. The overall theme of Tax Day was consultations and calls for evidence as the Government moves forward in delivering a tax administration and building a tax system fit for the 21st century.

Taxation of Wealth

The Government has written to the OTS acknowledging both the OTS reports on IHT and published its response to the First Report. This 2018 review concerned the administration of IHT, rather than the design and application of this tax. The Government has confirmed that reporting regulations will be changed with an expected start date of 1 January 2022, so that the majority of non-tax paying estates will no longer be required to complete IHT forms. In its letter to the OTS the Government has also suggested that it will respond ‘in due course’ to recommendations in the OTS’ Second Report on simplifying the design of IHT, which included the more substantial recommendations like reforms to business property relief (see our previous Tax Matters Digest article).

It is possible that the Government’s response on IHT may be combined with its awaited response to the OTS review of Capital Gains Tax (CGT), which makes a number of recommendations including the possibility of increases to the rates of CGT, and about which nothing was published on Tax Day. At present there is no further indication of the direction of travel for CGT and IHT and the Chancellor remains silent on his future plans for capital taxes. It is possible that there could be further announcements in a future Budget, possibly in the autumn. For our Tax Day reminder of what do we know about the future of capital taxes see Jo Bateson’s Blog.

Responses to the 2018 Review of Trusts were also published. This separate review of trusts focused on the principles that the Government believes should underpin the taxation of trusts being transparency, fairness and simplicity. With ‘fair’ in this context referring to the neutral tax treatment in comparison to similar circumstances where a trust is not used. One point considered was whether some of the technical differences between the taxation of trusts and personal tax might give trusts an unfair advantage. The review specifically considered a targeted reform of the IHT regime for trusts (the IHT charges on set up, every 10 years and exit), with some suggestion that the rate for these charges should go up. The overall conclusion of the Government is that there is no desire for a comprehensive reform of trusts at this stage, with issues raised kept under review in the long term to ensure objectives continue to be met. Whilst in the shorter term the Government stated that it will continue to review specific areas of trust tax on a case-by-case basis.

This overall long term conclusion recognises and provides a positive endorsement of the value of trusts used, for example, for the purpose of protection of wealth and succession, with the overview stating, “that as trusts can exist for many generations the principles of consistency and certainty should also be given due weight”. It is possible that the IHT rate question for trusts will now get subsumed into a broader IHT or capital taxes review, but otherwise the rate might reasonably be regarded as being as stable as any other capital tax rate. Family offices and private clients either already using trusts or considering trusts to structure their affairs who were cautious about setting up trusts while the review was underway may now feel encouraged to move forward with their decisions.  

With no immediate significant changes to the taxation of wealth, family offices and private clients may now wish to ensure they take stock of their current position so they are then better placed to understand the impact of any future changes.

Modernised Tax Administration Framework

The Government's 10-year strategy to build a trusted, modern tax administration system was published in July 2020. On Tax Day further consultations and calls for evidence were published, which included for individuals:

  • Confirmation that the Government intends to legislate later this year to extend Making Tax Digital to Income Tax Self-Assessment from April 2023; and
  • A consultation on ‘Timely Payment’ with the Government opening dialogue on the benefits and challenges of both the current tax payment timings and of moving to more frequent calculation and bringing payment closer to the point when the income arises. The Government is seeking views primarily on Income Tax Self-Assessment and small companies (those outside the quarterly payments regime). However, it also invites views on whether more timely payment options should be explored for CGT outside of the existing 30-day payment and reporting regime for UK residential property.

Other announcements

  • For second homeowners with holiday lets, a strengthening of the self-catering accommodation criteria to ensure only genuine holiday lets can register for business rates; and
  • HMRC are seeking views on how they can ensure offshore income and gains are reported correctly (e.g. how they can best use the data they already hold, how they can support taxpayers, and how they can work with agents to encourage compliance).

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