Tina Riches, national tax partner at Smith & Williamson, says that the upcoming Budget will require the skills of a tightrope artist
Introduce CGT charge on properties owned by 'non-doms'
We know that the Government is thinking about introducing a CGT charge on the sale of residential properties owned by all non-UK residents, and we are expecting this to be in place by April 2015, with an announcement around this year's Budget. However, the net increase in tax yield is likely to be small and, as it is only expected to apply to future gains on sales, would take time to trickle through.
Some difficult decisions are due as to what the charge will cover, especially around, for example, private residences occupied by, say, a spouse. In particular, clarity on the distinction between residential and commercial property would be necessary.
CGT freeze
The Chancellor could freeze this allowance – currently due to be £11,000 for 2014/15. This follows his earlier approach whereby CGT was frozen for 2012/13.
Mansion tax and council tax banding
The idea of an annual tax charge on properties worth more than, say, £2million, is gathering steam. This would add much needed funds, although there is concern that a new tax on wealth, especially if it were introduced with little notice, would hit those with assets that have risen in value but who have low liquidity.
Council tax bands have been unchanged since their introduction in 1993 (apart from those in Wales), despite a significant increase in property values during the period. One possibility is therefore to amend those bands to provide a wider range of values at the top end.
The government already has details of property values following the introduction of the ATED (annual tax on enveloped dwellings) for those residential properties owned through companies, unit trusts and partnerships with a corporate partner.
Personal allowances
The personal allowance is due to rise to £10,000 for the 2014/15 tax year, and there are hints that the Chancellor would like to announce further increases. However, there are growing calls from his colleagues to support the increasingly 'squeezed middle' by raising the 40% tax threshold.
The current plans are for people with income over £41,865 to pay tax at 40% from April 2014. The threshold has been systematically reduced, especially in real terms, in recent years to compensate for the increase in the personal allowance.
As a result there are now around 4.7 million people paying the higher or additional rates of tax. In comparison, only around 2 million people were paying tax at 40% in 1994/95.
Despite the pressure on the state's finances, with an election looming in 2015, increasing the 40% threshold ahead of inflation must be an obvious vote-booster given that almost 5 million people are expected to fall into this tax bracket by that time.
Increase allowance for rent-a-room relief
With four million people renting private property and the continued pressure on housing, an easy way to boost the supply and to help those facing the 'bedroom tax' would be to increase the threshold for rent-a-room relief.
Currently taxpayers are exempt from income tax on up to £4,250 pa gross receipts received from a lodger who is living in their only or main home. The figure has been unchanged since it was introduced in 1997, despite the huge increases in average rental charges since then.
Tax dispensation for international sportspeople
At present, non-resident international sports people are liable to pay tax, not only on their UK winnings, but they are also taxed here on a proportion of their world-wide income when they participate in sporting events in this country.
This can mean they pay more in UK tax than they win at a particular UK competition. As a result some high profile individuals have dropped out of UK competitions at short notice or are selective in which ones they attend.
The government has exempted certain competitions, for example, the Commonwealth games, the Olympics and Champions League, this often being a condition of securing the events in the UK.
However, given that top-level sports are played at a global level, having a fresh approach to the taxation of these internationally mobile individuals would make sense. Far greater tax receipts can arise from the business and activity around the participation of top sports people in UK events than the tax on their individual income, making the current system counter-productive.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
