To the surprise of pundits and pollsters throughout the land, the Conservatives are set to form the next government, one which will not be a coalition. Does that mean the concerns expressed in some quarters about tax changes under other government structures (eg Labour/SNP) can now be dismissed?
The answer is not as straightforward as it might appear. Firstly, there is the little matter of the government borrowing, pencilled in at £75bn this financial year, which George Osborne wants to transform into a small surplus by 2018/19. Then there is the undeniable fact that what is contained in a manifesto and what actually happens is not always the same. With those provisos in mind, what is theoretically on the agenda?
To begin with there are several measures announced in the March Budget which failed to reach the statute book before the election. These include a further cut in the pension lifetime allowance from £1.25m to £1m in April 2016, with another set of transitional protection provisions that can be claimed. The Conservatives’ manifesto also proposed a phased reduction in the pension annual allowance for those incomes above £150,000, bringing it to just £10,000 if income exceeds £210,000. If either measure could affect you, it could be worth making pension contributions now, before the law is changed. But do take advice, pensions is a complex area.
On income tax, the Conservative manifesto promised that by 2020/21 the personal allowance would rise to £12,500 (£10,600 in 2015/16) and the higher rate threshold to £50,000 (£42,385 today). This would still leave the higher rate threshold well below what it should be if it had been inflation linked since it reached £43,875 back in 2009/10. The Budget set out modest threshold increases for the next two tax years, taking it up to £43,300 in 2017/18 (see chart).
Another Budget income tax measure to be legislated for is the personal savings allowance from 2016/17. This is worth tax saving of up to £200 on interest and certain other investment income for basic and higher rate taxpayers only. The fact that it arrives next tax year creates some interesting planning opportunities in this
A late entry into the Conservatives’ manifesto was a main residence inheritance tax exemption of £175,000, transferable between spouses and civil partners. This proposal has been criticised as overly complex and bad for the housing market. It may be that, post-election, the idea is simplified to an increase in the nil rate band from £325,000 to £500,000. In the meantime, estate planning should probably be put on hold – other than for updating (or writing!) of wills.
All three main UK parties pledged action on tax avoidance and evasion and all three gave big numbers, but little clue what they would actually do. The Conservatives intend to raise an extra £5bn a year by 2017/18. In practice, this will probably mean more of the same, eg clamping down further on offshore evasion and aggressive avoidance schemes.
The election result has removed the threat of 50% tax, but in many other respects the new government remains constrained by the aftermath of the financial crisis. Personal financial planning rather than government largesse will continue to be the primary route to taming tax bills.
Our Post Election Round Up was produced by Technical Connection if you require personal advice on how the election effects you we strongly recommend you seek Independent Financial or Tax Advice.