32 taxation Where now for 50% tax?
With the future of top rate income tax set to be announced next year and no end to the political wrangling in sight, Jamie Morrison, head of private client tax at Target Chartered Accountants in Reading, surveys the chancellor’s options
George Osborne has made it clear that he wishes to scrap the 50% income tax rate to attract wealth creators into Britain, but with many Lib Dems set against the measure and demanding new wealth taxes, the Chancellor’s decision is far from straightforward.
January review
The chancellor has always said that the higher rate is a temporary measure; however, recent reports suggesting that 50% tax receipts will be lower than expected may have prompted him to review the issue sooner than planned.
In order to put an end to the political stalemate, the chancellor has asked HM Revenue & Customs (HMRC) to review the 50% rate to see exactly how much tax it raises, with the results due out in January. It is possible that an announcement on the future of the rate could be made in the March Budget and
implemented as early as April 2012 – however, the political fallout from such a move could be immense unless it is countered with a new wealth tax.
The failure of 50% tax
No one is in any doubt that a 50% tax rate is counterproductive for the economy. A lower income tax rate would mean more investment, which is key, given that the ‘recovery’ is dependent primarily on the private sector.
The Government has taken steps to improve UK competitiveness by reducing corporation tax to attract inward investment and relaxed the restrictions on non-UK domiciles seeking to remit funds to the UK to invest; however, the increase in income tax and NIC, together with the significant red tape and the ongoing complexity of the UK tax system means there is a natural conflict between attracting
inward investment from businesses whilst owners suffer personally by relocating here.
New wealth taxes?
Vince Cable has already hinted that a property tax on expensive homes may be the sacrifice high earners will have to make if the 50% rate is reduced. However, the problem with this idea is it assumes all owners of high-value property have earnings to match. Added to this, there are question marks over how the Government would implement such a tax, not forgetting the risk of destabilising the top end of the property market.
Ultimately, such a policy could prove unworkable; however, the Chancellor has admitted that he will be looking at ways to make wealthy individuals ‘pay their fair share’, so some form of new wealth tax may well be an area he targets in the future.
Capital allowances - use them or lose them!
HMRC is proposing to change the rules over capital allowances from April 2012, so commercial property owners and certain ‘residential’ landlords need to act fast to secure their claims in time, as Kevin Voller, associate director at Target Chartered Accountants in Reading, explains
The rules on capital allowances – a very valuable form of tax relief available to commercial property owners and some ‘residential’ landlords – are due to be tightened up, possibly from April 6, 2012.
Capital allowances allow owners to claim tax relief for up to 100% of expenditure incurred on fixtures, fittings or equipment. Such items can be fixed to or form part of the building itself, such as heating, water and air-conditioning systems, sanitary ware etc, or free-standing items. Typically, up to a third of the building cost can represent such items so the tax savings can be substantial.
What’s changing?
Currently, capital allowance claims can be made retrospectively and there is no time limit for submitting a claim. Therefore, it’s possible to make claims stretching back many years if these have been missed previously.
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However, HMRC is proposing to introduce a time limit so that in the future capital allowances will have to be claimed a short period after acquisition, otherwise the buyer loses the right to tax relief completely. The precise details are yet to be revealed, but a period requiring ‘pooling’ of expenditure within one or two years after it has been incurred would appear likely. The rule change is also likely to impact on expenditure incurred before April 6, 2012.
Qualifying criteria
Commercial property owners – capital allowances are available in two situations; firstly, when a commercial property is purchased and secondly, when a new commercial property is built, or fit- out/refurbishment works are undertaken. When an existing building is purchased, the buyer can make a ‘just and reasonable’ apportionment of the purchase price
to reflect the fixtures element, even if it was bought a number of years ago.
‘Residential’ landlords – landlords of houses in multiple occupation (or HMOs), such as student lets or shared houses, are able to make capital allowance claims for expenditure incurred up to October 22, 2010. Allowances can be claimed for plant and fixtures located in most communal areas, which in practice will cover the entire property (with the exception of individual bedrooms). It is also possible for landlords to claim for expenditure incurred on the original purchase price of the property (whenever that occurred) and any subsequent additions within the qualifying period.
Act now...
Property owners and landlords risk losing the opportunity to claim substantial tax relief if they don’t ensure all available allowances are
THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2011
properly analysed and claimed before April 2012. The process of handling complicated claims can take time, so it is advisable to act as soon as possible.
Details: Kevin Voller 0118-9581331
kevin.voller@target-accountants.com
Target is a top 50 firm of chartered accountants working exclusively with entrepreneurial individuals and their businesses around the country. Established 13 years ago as a specialist tax consultancy, Target are leading advisers in six core integrated service areas: audit and assurance, business services, tax planning, corporate finance, financial management and HR consultancy.
Act now
Whilst the future of the 50% rate is up for debate, tax planning strategy remains as important as ever. Maximum use of allowances, exemptions and reliefs should be a key priority. Those paying 50% tax may want to accelerate pension contributions to benefit from higher tax relief whilst the rate is in place.
Further tax efficient investment options to secure 50% tax relief may include investments, such as those benefiting from the Business Premises Renovation Allowance – an enhanced capital allowance for the redevelopment of commercial property in certain parts of the UK. Other tax efficient investments, such as Enterprise Investment Schemes and Venture Capital Trusts, will also be attractive.
Details: Jamie Morrison 0118-9581331
jamie.morrison@
target-accountants.com
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