A change in the way in which the rate thresholds for personal tax are calculated will result in a substantial increase in the number of higher rate taxpayers over the next five years, according to analysis say Harris & Co accountants Northampton who specialise in tax and accountancy services for small and medium sized businesses.
In his preview of this week’s Autumn Statement Bill Dodwell, head of tax policy at Deloitte, said: ‘The personal tax allowance for 2014/15 was announced in the Spring Budget to be £10,000. The higher rate thresholds for 2014/15 and 2015/16 will now increase at 1%, rather than CPI. This is planned to bring in an extra £3.8bn over the next four years and will bring many more into the higher rate band.’
Deloitte’s calculations suggest that 20% of taxpayers, or about 5.5m workers, will be charged at least 40% within five years.
Dodwell says the Autumn Statement will include more detail on previously announced plans to introduce the ability to transfer up to £1,000 of the personal allowance from one spouse or civil partner to another, which the government says will benefit up to 4m couples. There is also likely to be an announcement about allowing parents to transfer Child Trust Funds, which were available from 2002 to 2011, into Junior ISAs.
While speculation that Treasury is considering imposing a capital gains tax charge on non-residents who dispose of UK residential property may be correct, Dodwell says immediate action on this is unlikely.
‘There would be a considerable number of technical issues with introducing such a charge and we would expect a period of consultation before any changes were introduced. These could include “rebasing” (only charging tax on gains after introduction, by treating the property as acquired at market value on the date the law changes) and reporting details of sales,’ Dodwell said.
Dodwell highlights the fact that a number of consultations have recently ended, opening the way for the chancellor to make legislative changes in areas which have been identified as giving rise to tax planning, such as the use of offshore employment intermediaries, the taxation of corporate debt and derivatives, and the inheritance tax (IHT) regime for trusts.
‘Over the Summer HM Treasury consulted about creating a tax incentive to encourage social enterprises. However, we have concerns that the proposals – a tax relief based on the existing (and complex) Enterprise Incentive Scheme – would not achieve their objective. We favour a much simpler scheme similar to Gift Aid, based on outright donations to (rather than investments in) approved social enterprises,’ Dodwell said.
There may also be action on the Office of Tax Simplification review of employee benefits and expenses, and more detailed information on the two new lifetime allowance protections for pensions due to take effect from 6 April 2014. Dodwell says the chancellor will also use the opportunity to expand on proposals to change the taxation of partnerships.
Dodwell says the Autumn Statement may also provide more indications of how government plans to encourage employee ownership of companies via changes to capital gains tax relief and an income tax and national insurance contributions (NICs) exemption. However, there is unlikely to an announcement on reforms to the international tax system ahead of results of the OECD’s work on its Base Erosion and Profit Shifting project.