30 May 2017

Pre-election tax planning 2017

Property

With the Labour Party reportedly reducing the government’s lead in the polls, the odds being offered on a Conservative majority government have lengthened from 100-1 on to “only” 10-1 on.  We don’t do politics, but we do do tax, and a few people have asked us what, if anything, can sensibly be done in terms of tax planning for the possibility of a Labour win.

Close examination of Labour’s manifesto and its associated costings document Funding Britain’s Future suggests that the answer is “probably not much”.  There are proposals to increase Corporation Tax for larger companies and Income Tax rates for people earning over £80,000 annually.  It is explicitly stated that the CT increase will be from 2018/19 and Income Tax (as an annual tax) can only in practice be changed for a complete tax year. So unless the IT increase is retrospective to 6 April 2017 (theoretically possible but highly unlikely) that too would be effective only from next April.  So there would not seem to be any advantage in accelerating income to accrue before the date of the election.

There is also a proposed “excessive pay levy”.  Although the manifesto describes this as a payroll tax biting on the employer of someone earning more than a defined limit, the study by the Centre for Labour and Social Studies on which it is based (referenced in Funding Britain’s Future) envisages the charge extending to all earners (self-employed as well as employees) and biting on income including bonuses, share options and dividend payments at rates of up to 10% – effectively an additional Income Tax.  But the detail is not worked through and it seems very unlikely that such a charge could be introduced on Day One of a new government.  So probably no advance planning to be done there either.

There’s a commitment not to increase the rate of VAT generally and the only indication of any changes is the measure to impose VAT on private school fees.  So there would not seem to be any reason to accelerate making of VAT supplies (unless you are a private school).

On transactional taxes, the manifesto pledges “reversing tax giveaways on Capital Gains Tax, Inheritance Tax, bank levy and scrapping the married persons’ tax allowance”.  That would mean increasing the rate of CGT by 8% to 18% for basic rate payers and to 28% for higher rate payers: such changes certainly could be (and historically have been) made mid-year.  So if you are planning on making disposals which will generate taxable gains, perhaps best to consider making them before the election if possible.  Arrangements involving “uncompleted contracts” (as were popular on the change of rates in 2010) would be possible: but in 2010 the increase was all but certain (and duly happened) – in 2017 the risk/investment analysis may be different.

Our assessment?  Very few of the tax changes announced in Labour’s manifesto are susceptible to pre-election tax planning.  Were Labour to form a government, we are not alone in thinking it likely that there will have to be many tax changes above and beyond those exposed in the manifesto if Labour’s spending plans are to be afforded, and we would envisage having to spend a frantic few months after the election reviewing clients’ tax profiles in the light of proposals as they develop.  But other than the very limited areas we’ve described, we don’t see scope for prophylactic action now.  Except perhaps hedging your bets with a flutter on Labour to win.  We’re told you can still get 18-1 against.

For specific tax advice, please get in touch with your usual BKL contact or use our enquiry form.