The surprise election result has removed some potential tax increases, but a variety of delayed tax measures and manifesto promises remain.
The Conservatives' unexpected victory on 7 May means that the threat of a mansion tax on properties valued at over £2m has disappeared and a return to a 50% additional rate is off the agenda. However, as a percentage of economic output, the government deficit is larger than Greece's according to the IMF, so any tax cuts will need to be balanced by increases elsewhere and/or further expenditure cuts.
There is already one subtle tax increase left over from the March Budget which is due to be legislated for and take effect from April 2016. The effective tax-efficient maximum value of pension benefits, the standard lifetime allowance, may drop by 20% to £1m. In addition, the Conservatives' manifesto announced another pension tax change with a phased reduction in the annual allowance (broadly the maximum tax relieved total annual contribution) for those with income above £150,000. If either of these changes might affect your retirement planning, then talk to us as soon as possible: some pre-emptive planning may be possible and you may need to claim some transitional protection.
The manifesto said that the latest cut in the annual allowance was to finance a new main residence inheritance tax exemption of £175,000, transferable between married couples and civil partners. However, the relief would be phased out for estates above £2,000,000, with no relief at all for estates worth more than £2,700,000. The mechanics of how this will operate – particularly in the context of those who have to move into residential care – remain to be seen. It could be that, post-election, Mr Osborne opts for what would be a much simpler and not much more expensive alternative – an increase in the nil rate band to £500,000. While we wait to see what happens in the July Budget, in most instances estate planning – other than updating (or writing) wills – is best deferred.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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