Chas Roy-Chowdhury, ACCA head of taxation, responds to George Osborne’s summer Budget.
Inheritance tax
The Chancellor should have been bolder in his first Budget in a Conservative majority government. The change to inheritance tax is a positive step, although he could have just removed the primary residence from the scope of the tax entirely. This would have made it a level playing field for all. He has introduced a highly complex system of relief tapers and carry forwards.
Many people imagine a house worth £1million to be a mansion but in the South East, and especially London, that is not the case.
Living wage
We welcome that he took the opportunity to incentivise employers to pay the living wage. During the election campaign he and the Prime Minister spoke about raising wages for all but a commitment to eventually raising the minimum wage. This is the right direction at £9 per hour and increasing the NIC relief to £3,000.
Corporation tax
It was a very pleasing and important message to send to the global business community to continue to reduce corporation tax. Although a reduction to 18% by 2020 will be welcome Mr Osborne could have gone further by continuing the 1% per year reductions throughout this parliament. We are in a competitive global market and the more we can do to encourage all businesses to the UK, the better the long-term tax yields will be.
Fiscal drag
We welcome the rise in the 40% tax threshold, something the Chancellor has wanted for some time. Over the past five years, he has restricted the personal allowance increase to basic rate taxpayers and on many occasions lowered the level at which the 40% rate came in. If this change had been delayed much longer we would be in the situation where 40% had, in effect, become the basic rate. The rise to £43,000 by next April will come is a move in the right direction.
Pensions
We are disappointed with the Chancellor’s decision to restrict pension tax relief at higher incomes. This constant tinkering and toying with people’s life-time plans is the wrong approach. This policy is at odds with both his and the Prime Minister’s claims that they want to create ‘a nation of savers’. By restricting relief you are limiting the attractiveness of saving for the future as well as tinkering with people’s long-term plans. This is a short-term tax grab that will have long term detrimental effects.
Non-domiciles
The proposed changes to the non-domicile status are a fair change to a system that was never intended to give high-net worth individual’s permanent tax relief. It is entirely sensible to scrap the status for those who have lived in the UK for 15 out of the last 20 years.
Road fund
The creation of road fund tax will show transparency by hypothecating the tax raised, and it would be welcome if Mr Osborne applied the same policy to fuel duty.
Rent a room relief
Excellent move to raise it from £4,250 to £7,500 next year, ACCA have been campaigning for an increase for a number of years.
Article contributed from ACCA InPractice