firm BDO, adds that the key is to be aware
of any changes:‘An annual review may not
be sufficient for investors with complex
investments and tax affairs. Usually, the
client’s advisers will alert them to changes
that have a direct impact on them, but it
is important that investors look at Budget
summaries provided by their advisers, and if
they think they may be affected by a change
to the tax law, they should ask the question
as soon as possible.’
Even apparently straightforward areas of
finance can be affected by changes. Pensions
regulation has undergone significant change
in recent years, including the scaling back of
tax relief for higher earners and caps on the
amount that can be saved over a lifetime.The
tax treatment of dividends and bank interest
has also recently been altered.
George Osborne’s actions to date suggest
that the pace of change and its scope will not
slacken.‘Generally, governments use tax
policy to change behaviours,’ says Brookes.
Müdd warns that pension tax changes could
culminate in a regime similar to that of
ISAs, which would have the attraction for
the government of postponing the upfront
claiming of tax relief by pension savers down
the timeline, thus helping its cash flow.
The government will report on the result
of its consultation on pension reforms in the
Autumn Statement on 25 November, when
the direction of change should be clearer.
For clues to where the government may
consider reforms, look at the areas already
being prioritised for other reasons. For
example, the drive to boost small business
formation and growth prompted the
development of theVenture CapitalTrust
system, while concern about the impact
of rising property prices on liability for
IHT encouraged an increase in the annual
allowance. But no area is guaranteed to be
exempt from changes; the key is to keep
abreast of changes to tax legislation.
Will writing involves the referral to a service that is separate
and distinct to those offered by St. James’s Place.Wills and
Trusts are not regulated by the Financial Conduct Authority.
Getty Images
Balance sheet
Because of the number of significant
changes in tax law over the past decade, it is vital
to ensure both your tax affairs and Will are regularly
reviewed and kept up to date.
IN YOUR INTEREST
TAX PLANNING
The average UK household saw an annual gain
of £321 a year between 2010 and early 2015
due to direct tax cuts, according to the Institute
for Fiscal Studies.
Pensions:
The new pension freedoms have
culminated in freeing ‘defined contribution’
investors from having to convert funds into
annuities and allowing over-55s to take out part
or all of their private pension savings. But tax
relief on pension contributions for higher earners
has been cut, with more to come in April 2016.
Tax rates:
The top income tax rate rose from
40% to 50% in 2010 but was reduced to 45% in
2013. The standard personal allowance has gone
up from £6,475 in 2010 to £10,600 now and
will be set at £12,500 by 2020. Other changes
have had a negative effect on higher earners.
Venture Capital Trusts:
Chancellors have
made regular changes to VCTs and the July
Budget aimed to encourage younger, growth and
innovative businesses. That may make VCTs less
popular, despite the 30% upfront tax relief as tax
relief for more established businesses is restricted.
Inheritance:
The IHT threshold, set at £325,000
per person since 2009, is being extended
between 2017 and 2020 to include another
£175,000 per person for the family home. Since
married couples and civil partners can share their
allowances, a family home of £1 million will be
exempt by 2020. In recent years, many families
have agreed to vary the terms of a parent’s
Will. These deeds of variation could be used to
change a Will so that the bequest bypasses a
generation and could reduce IHT.
Fewof us are expert
enough to identify and
understand tax changes
on our own
their parents or grandparents failed to keep
pace with other tax changes.‘We are seeing
a lot ofWills that haven’t been updated,’
says KirstieWilliamson,Tax Manager at
law firm Irwin Mitchell.‘People are
starting to miss out.’
The pace of change in tax law looks likely
to accelerate because the government has
placed many key areas under review. In
his summer Budget, Chancellor George
Osborne announced that estates worth as
much as £1 million can be sheltered from
IHT – a relief to be staggered over three
years fromApril 2017 – a 54% increase
on present IHT relief. He has also begun
a review of the existing powers to vary
the terms of aWill after a person has died
– something that could have a significant
impact on many families. Other recent
tax changes could affect the tax status
of partners in professional firms and the
Capital GainsTax liabilities of entrepreneurs.
Few of us are expert enough to be able
to identify and understand these changes on
our own.That means it is vital to include tax
changes as part of regular financial reviews.
Tony Müdd, Divisional Director of Tax and
Technical Support at St. James’s Place, says
advisers have a professional responsibility
to keep a watching brief.‘Advisers
will be analysing their clients’ affairs,
identifying what changes mean for them
and communicating that to clients,’ he says.
David Brookes,TaxAdviser at accountancy
TAX CHANGES SINCE 2010
THE INVESTOR
|
21
