Waking up this morning to election results that are largely unexpected, we have been reflecting on what implications there are for tax planning. It seems very unlikely that any minority Conservative government will last for the full term. And there is a real possibility of the next election returning either a majority Labour government or a “progressive alliance”.
What, then, are people contemplating doing in anticipation of that possibility? We don’t advise precipitate action – haste is often regretted – but we do recommend giving some careful thought now to what might be done.
If you are considering restructuring, reorganising, disposing of assets (including business sales) or carrying out in the medium-term any other transactions that give rise to transaction taxes such as SDLT or CGT, it may be worth doing them sooner rather than later. Unlike taxes on income, these taxes could quickly and easily be raised mid-year by an incoming government.
The Labour manifesto included reference to a “Land Value Tax” – effectively a wealth tax limited to land assets – so it is not at all beyond possibility that a left-wing government might introduce a wealth tax of wider scope. On that basis, gifting assets may be an attractive option – either by outright gift or possibly by placing them into trust while the Inheritance Tax nil rate band remains at its present level.
It’s a safe bet that extracting profits from a company would become more expensive under a left-wing government. Nothing is likely to change until next April, but it may be worth starting to think about what cash you are going to need to extract over the next few years, liquidating assets in the company and being ready to take cash out before April 2018 if an increase in rates looks likely.
Clients concerned about the longer-term value of sterling may be thinking about shifting assets outside the UK. This will in general have no tax advantage for clients who remain resident in the UK. Non-domiciled clients are an exception to the rule – for those clients, investing offshore may have tax advantages. What will now happen about the postponed legislation on non-doms (or the other tax provisions removed from the Finance Bill before the election) is uncertain.
More drastically, one or two clients have already contacted us about the tax implications of taking up residence outside the UK. Broadly speaking this will not affect UK tax liability in respect of UK-source income from employments, businesses or rents and will have only limited effect on capital gains on UK residential property. It would potentially save tax on other capital gains, dividends and interest (and of course on any non-UK income or gains).
Under the codified rules of the “Statutory Residence Test” it is at least now possible to say with certainty what is required in order to shed UK tax residence status. The rules generally operate on a tax year basis (“splitting” a tax year is possible only in limited closely-defined circumstances) and it is not too early now to be thinking about the steps necessary to cease UK residence with effect from next April.
To discuss options specific to your circumstances, please get in touch with your usual contact partner or use our enquiry form.