Pre-budget analysis from Duncan & Toplis

With the new chancellor due to give the government’s first budget since 2018, senior figures from Duncan & Toplis have analysed some of the rumoured changes that could be announced.

Head of Tax, Nicholas Smith considers the impact of a possible “mansion tax” and a re-evaluation of council tax

"What began as a Labour Party policy in 2015, is now rumoured to be included in this year’s budget. The so-called “mansion tax” could see homes worth more than £2m pay an annual levy of around £11,000.

Under the original proposals, this could be paid annually or it could be deferred until the owner’s death, when it would be paid out of their estate. At the time, it was anticipated to affect 110,000 of the most expensive homes in the country, most of which are in London.

The Conservatives have resisted this for many years, but there are newspaper reports that the tax is now being considered again, even though the Prime Minister is said to have “cooled” towards the idea.

At the same time, it’s possible that council tax bands could be adjusted to be more in-line with modern market prices, creating a clearer distinction between the lower and upper bands.

The last time the bands were revalued was in 1991, so it is arguably overdue, but when the bands were redrawn in Wales in 2005, around a third of homes were placed in a higher band than they were in previously."

Director, Niall Kingsley writes that fuel duty is expected to rise:

"Fuel duty, the tax that's included in the price for petrol, diesel or fuel for domestic heating, has been frozen for the last decade.

While that's helped to slow the climbing prices, it's widely expected that the government may increase the tax with the rate of inflation - adding 2p to the price of petrol per litre.

Presently, fuel duty is 57.95 pence per litre on standard petrol and diesel, 31.61 pence on LPG and 24.7 pence on natural gas used as fuel in vehicles i.e. biogas. VAT is also charged at 20%. This amounts to a major cost for businesses whose employees cover long distances or which rely on haulage and logistics.

With the government wanting to encourage the use of electric vehicles and discourage the use of fossil fuels, this is seen as a way of raising funds which will be reinvested in infrastructure, but it won't be welcomed by motorists, particularly hauliers who already face pressures on their margins from fuel prices and wage costs."

Head of Probate, Graeme Hills says that inheritance tax could be set to change:

"While inheritance tax is a divisive issue, there is speculation that the government may change the rules on what assets count toward the current taxable estate thresholds, potentially changing business property relief and potentially scrapping agricultural property relief.

Presently, inheritance tax forces estates to pay 40% tax on assets worth more than a £325,000 threshold (or £475,000 if the asset is a home that’s left to children or grandchildren, or £950,000 if the tax break is inherited by a spouse or civil partner). At present, many business assets, including farmland, can be excluded from the calculation of taxable worth, but it’s possible that may change.

The removal of inheritance tax relief on agricultural land would be unpopular among my farming clients but I think it’s one of the more likely rumoured announcements for this year’s budget.

This could lead to major changes in how land is managed and run, with landowners being less inclined to invest in farmland to reduce inheritance tax and this would have a knock on effect for tenant farmers. However, most active farms would not be affected as they’d be able to retain their tax relief under Business Property Relief (BPR).

Unfortunately, this too is rumoured to change. While it’s unlikely to be scrapped altogether, it could be changed so it no longer applies to assets such as shares. This would prevent the practice of investing in businesses simply as a means to avoid inheritance while still allowing the relief to encourage genuine business investment, which is what it was created for.

It’s also possible that BPR could be capped to £5m or £10m, allowing smaller investors to benefit from the relief but taxing the bigger investors, which could be a more widely supported change that could raise significant funds for the treasury."

Director, Christine Newitt hopes for a reform of pension tax relief:

"Pension tax relief has been a target for many chancellors over the years and it appears that the restriction of relief from 40% to 20% is being considered again by the Treasury.

At one time a maximum of £225,000 could be put into a pension plan and tax relief obtained at the highest rate of tax. This has reduced significantly over time with the maximum available for tax relief being £40,000 and for the very high earners this is reduced to £10,000.

This seems straight forward until you consider the complexity of the legislation that has arisen around the restriction of pension tax relief. Relief is restricted for some taxpayers by calculating a tax charge which impacts some sectors significantly. This has been of particular note for doctors within the NHS pension scheme where I have seen incidents of the tax charge being in excess of the doctor's earnings - surely this cannot be equitable?

Whilst this example is not common place, it clearly indicates a system that is broken and I for one would welcome some reform in this year's budget to produce a sensible and equitable level of tax relief to encourage saving for retirement, where taxpayers have certainty around their tax liabilities and are not tripped up by over complex legislation."

Director, Simon Shaw writes that business owners should look out for changes to Capital Gains Tax:

“It’s widely expected that, following the budget on 11 March, the way business assets and certain share sales are taxed is likely to change.

Currently, when an individual sells an asset which is used in their business, or sells company shares, they can claim Entrepreneurs Relief in certain circumstances.

This relief reduces the rate of Capital Gains Tax on the gain from 20% to 10%, subject to certain limitations.

Although there are very specific circumstances where Entrepreneurs Relief can be used, it was first introduced to allow business owners to dispose of shares and assets without a large tax payment which may have delayed their decision.

Some feel this relief is being unfairly exploited and it’s therefore likely that the upcoming budget will see some changes to this relief which will increase the tax payable when business assets and shares are sold to prevent that.

Anyone selling a business asset or shares should carefully consider their position now to see if accelerating a sale might be beneficial before any potential changes to Entrepreneurs Relief are introduced.”


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