July 2024 Tax News

Both the Conservative and Labour parties have pledged not to increase income tax, national insurance or VAT, although the Labour party have pledged to introduce VAT on private school fees. Both parties are also committed to clamping down on tax avoidance and evasion which they claim will fund their spending plans. Both of the main parties also claim that removing the remittance basis for non-Doms will also yield more tax revenue, although Labour propose to plug loopholes in the Conservative plans. One tax measure not matched by Labour is the Conservative proposal to raise the personal allowance for pensioners in line with the State Pension triple lock so that none of the State Pension is subject to income tax. That is clearly aimed at attracting the “grey” vote. Ironically the Age-related personal allowance was abolished by the Conservatives. A further announcement in the Conservative party manifesto is a permanent extension of SDLT first time buyer relief. If this relief applies, there is no SDLT where the purchase price is no more than £425,000 and 5% thereafter. The relief does not apply where the purchase price is more than £625,000. SDLT first time buyer relief is currently scheduled to end on 1 April 2025. A measure in the property section of the Conservative manifesto that lacks detail is a proposed 2 year CGT relief where a landlord sells a rental property to the tenant. The Conservatives claim to be able to save £20bn by making “efficiencies” in the Civil Service – let’s hope that doesn’t mean reducing HMRC staff any further, as customer service is currently appalling. Labour claim that their proposal to close the “carried interest” tax loophole for general partners in the private equity and venture capital sector will raise £565 million. Such returns are currently subject to CGT at 18% or 28%. This possibly means subjecting carried interest to income tax or aligning CGT rates with income tax rates. However there is no mention of changes to the rates of CGT generally. In Scotland, the SNP’s manifesto says that they will demand the full devolution of tax powers, including over National Insurance, windfall taxation for companies and to crack down on tax avoidance and evasion. The party will support the reform of VAT to address imbalances in the rating system, including ending the VAT exemption for private schools and introducing a lower VAT rate for hospitality and tourism sectors.

The Institute of Fiscal Studies (IFS) indicates charging VAT on private schools would generate revenue of £1.6bn per year, which Labour claim would fund 6,500 extra teachers. Many parents have been asking if there is any planning to avoid the 20% increase in private school fees. However, the actual increase may not technically be a full 20% for parents as schools would be able to reclaim some input tax on overheads and property maintenance, potentially off-setting a lower cost base against a slightly higher term fee. One possible strategy involves pre-paying term fees in advance, often for multiple years rather than pay a term at a time. This strategy relies on accelerating the “tax point” for the service (see below). There may be anti-forestalling legislation, effective from the day of the announcement, but although Labour have stated that any legislation will not be retrospective, the effectiveness of such strategies cannot be guaranteed.

When a holding company sells shares in a subsidiary, the VAT incurred on the professional fees involved would normally be irrecoverable, on the basis that a sale of shares is an exempt supply. In a recent case a hotel group argued that a subsidiary was sold in order to finance the completion of construction of a new hotel and that there was a direct and immediate link between the raising of the funds and the group’s downstream activities of operating hotels. The Tax Tribunals were satisfied the VAT on the professional fees associated with the share sale was a general overhead of the group’s business and could be recovered as input tax. Based on the Upper Tribunal decision many other groups were advised to make protective claims for the recovery of input tax. Unfortunately, the Court of Appeal have now rejected the taxpayers arguments and found in favour of HMRC, thus denying recovery of input tax on the associated professional fees in connection with the share disposal as that is an exempt supply.

If you have children under 12 who attend a nursery, after school club, playscheme or childminder, or you are considering sending them to a summer camp, you should think about setting up a tax-free childcare account. The government adds 25% to the amounts that you save in the account - up to £2,000 for each child - so £8,000 is topped up to £10,000 (a higher amount applies for disabled children). The account is then used to pay Ofsted registered childcare providers. Note that it doesn’t need to be the child’s parents paying into the account; uncles, aunts, grandparents and others can also make payments, The government have noticed that many families who are eligible for this scheme are yet to set up their accounts, so if you are an employer you could bring this to the attention of your staff to increase the take up. Note that parents are not eligible if either of them have adjusted net income in excess of £100,000 for the current tax year.