As the dust begins to settle following an unexpected Conservative majority win and subsequent high-profile resignations, attention among wealth managers is returning to what the result could mean for clients, particularly in tax terms. While we will now not see the introduction of more dramatic reforms to the resident non-domicile system of taxation or the likes of the mansion tax, there will surely be a number of notable changes.
For resident non-domiciled taxpayers (RNDs) this could include further increases in the remittance basis charge, beyond the recent move to £60,000 for those resident for 12 of 14 years and addition of the new £90,000 rate. The manifesto also sets out a review of inherited non-dom status together with possible further measures designed to “tackle abuses of this status” and there remains the prospect of a minimum, possibly 3-year, claim period for the remittance basis following closure of the associated consultation last month.
Alongside the continued focus on tax evasion and aggressive avoidance, the attention being paid to high net worth individuals, and more recently to “Rising Stars” (individuals approaching the tax authority’s threshold for HNWI status), is only likely to intensify and, regardless of who holds the majority, the general trend appears to be toward an increase in the overall tax burden and more stringent application of the rules.
Also promised, in response to rising property prices, was the widely publicised introduction of an effective £1,000,000 inheritance tax threshold. This is reached via a £175,000 individual main residence allowance designed to “take the family home out of tax”, added to the existing nil rate band for a couple. Tax relief on pension contributions for those with income above £150,000 is set to be limited in order to pay for this. However, it remains unclear whether the current nil rate band will be increased or main residence relief broadened to the estate as a whole.
Other changes we can expect to see are an increase in the higher rate income tax threshold to £50,000 and self-imposed legislation to prevent further increases in VAT, income tax or national insurance for the duration of this parliament. Although viewed by some with suspicion, the latter ostensibly underlines that non-tax methods will be used to reduce the deficit, though the door has been left open to less obvious measures such as the modification of tax thresholds or changes to exemptions or deductions.There is also no mention of a cap on capital gains tax.
The Chancellor is widely anticipated to deliver a second, perhaps reduced, 2015 budget in the very near future akin to the statement that followed the last election. Although the absence of the Liberal Democrats is less striking than the transition from Labour to the Coalition, an announcement in some form is nevertheless likely, in order to signal the start of a period of wholly Conservative-led fiscal policy.
The changes will clearly not be as extensive as many had thought, and clients who might have been considering departure from the UK may now be reconsidering. However, the Conservatives will be expected to see those refinements that were announced pre-election through to implementation, and existing planning may therefore require some adjustment as the landscape becomes clearer. A UK compliant Lombard International Assurance S.A. life policy can offer an efficient means of structuring wealth in the new environment, including deferral of tax and relief from the further tightening and increased cost of the remittance basis. Should the RND regime one day be dismantled in its entirety, a life policy of this sort would continue to offer deferral and could prove an attractive alternative to the unwinding of multiple foreign income and/or gains accounts.
Please do not hesitate to contact Simon Gorbutt or your usual Lombard International Assurance representative if you have any queries or require further information.