25 October 2022
Last updated: Wednesday 26th October 2022
It’s been a turbulent few weeks for the government. After an ill-received Mini Budget, both Kwasi Kwarteng and Liz Truss resigned and new Chancellor Jeremy Hunt has shelved almost all the tax measures previously announced.
If you’ve lost track of what’s happening, you’re not alone. The turmoil has been a major source of frustration for business owners across the country, who are trying to make decisions and form long-term plans on decidedly shaky ground.
As David Fort, Managing Director of Haines Watts Manchester, puts it: “It’s been a mess. Our clients are trying to run businesses: all they ask for is stability and a clear medium or long-term plan on what the tax regime will look like.”
We’re hoping that there’s much-needed clarity on the horizon, in the form of the Chancellor’s Medium-Term Fiscal Plan on 17th November 2022.
New Prime Minister Rishi Sunak's previous tenure as Chancellor suggests he will have a good grasp of the economic situation and the need to calm markets, but what can we expect from the new government's Medium-Term Fiscal Plan?
The Mini Budget policies being reversed
In the last week, the Chancellor reversed a number of tax measures from September’s Mini Budget.
While there may be further updates in this month’s fiscal plan, here’s how things currently stand:
- Corporation tax will go up from 19 to 25 percent in April 2023, as originally planned
- The basic rate of income tax will stay at 20 percent
- The top 45 percent rate of income tax will remain in place
- The 1.25 percent increase to dividend tax, which came into effect in April 2022, will remain
Read a full overview of the reversals and the impact on businesses in our up-to-date Mini Budget guide.
Six talking points ahead of the Medium-Term Fiscal Plan
1. Further taxes for non-residents
Given the “scale of the economic challenges”, Nicola Goldsmith, Head of Private Client at Haines Watts London, explained that it’s very likely taxes will be introduced or raised.
“Non-voters are relatively easy targets, so there’s a possibility of further taxes in the hands of non-residents. This could include reducing the benefit of disregarded income, and taxing non-residents on gains arising on sales of shares,” Nicola said.
“They could extend Inheritance Tax to property-rich companies which hold UK commercial property. Or, they could extend the temporary non-residence rules to catch gains on disposals of assets held at departure and certain income.”
2. Reintroducing mortgage interest relief
With the mortgage world suitably rocky at the moment, Ian Haynes, Tax Director at Haines Watts Edinburgh, said that the fiscal plan could reintroduce some form of mortgage interest relief.
“The mortgage interest relief could be akin to the old Mortgage Interest Relief At Source (MIRAS) scheme that gave tax relief on home loan interest. This was capped in the past, so they could introduce something along the same lines.
“It could either be a general fixed cap or perhaps linked to income levels that would start to reduce beyond a certain point, so that the wealthy didn’t benefit in the same way. This may need to be tempered given the number of people who rent and the scarcity of affordable mortgage offers, however,” he said.
3. Revisiting Capital Gains Tax
Ian also speculated that the Chancellor will decide to revisit Capital Gains Tax (CGT) as a way to increase revenues.
“This would no doubt appeal to the general concept that those who are financially comfortable should pay more to the system, as the transactions hit by CGT are often thought of as belonging to the wealthier element of society.
“There is a wide scope available for the government to draw upon: align rates with income tax, abolish annual exemptions, increase rates for particular disposals and so on. These were all popular ideas that haven’t yet come through,” he said.
4. Help to Buy schemes
Martin Mann, Head of Tax for OMBs at Haines Watts London, echoed Ian’s sentiment on capital taxes. He also believes there could be help for prospective home owners in this month’s statement.
“I don’t think anything radical will be announced, but extended freezing rates and allowances is a good bet as it would increase the tax take without making headlines,” he said.
“More radical thoughts would be around introducing a higher rate of CGT or aligning it with income tax rates. There could be reform to remove principal private residence exemption for top-end valued properties too.
“For home owners and buyers at the other end of the spectrum, I can see more help for first-time buyers. This could come in the form of stamp duty holidays or more Help to Buy schemes.”
5. Rethinking the corporation tax increase
After the disruptions at Number 10, Martin adds that the government will want to ensure the Medium-Term Fiscal Plan settles the market – without conceding on policy.
“I think they will rethink the corporation tax increases, but target larger companies who are best equipped to manage the tax increase. They might even delay it.
“They could also create something in that space with more tax breaks for the SME market, such as further super deductions for investment and R&D,” he said.
6. Higher tax relief on pensions
The higher rate of tax relief on pensions has been in the cross hairs before, but Ian Haynes also believes that it could be covered in this month’s fiscal plan.
“As more employees and employers opt for salary sacrifice schemes to fund pensions, the impact of higher rate relief in the last ten years has probably reduced,” he said.
“Those with their own company will no doubt use it to make their pension provisions, so the tax take overall by cancelling this extra relief may not be huge. However, it could provide some interesting headlines as the government tries to demonstrate they are taxing the better off.”
Get clarity and support for your business
If you’re not sure how the latest announcements will affect you and your business, please get in touch. Our team can help you navigate the upcoming changes and provide support wherever you need it.
