Budget Report - Plan Whilst You Can

The Chancellor has not yet attacked the inheritance tax regime writes John Newth as he takes a brief look at a budget which proved rather uneventful from the point of view of elderly clients.
John T.Newth FCA, FTII, FITT, is Deputy Editor of Taxation Magazine and a practising independent tax consultant.

The 1998 Budget was not bad news for the elderly client. Rumoured significant changes to the inheritance tax regime did not take place - indeed the exemption limits were slightly increased.

Tax relief on personal pension and other pension arrangements was not withdrawn in any way, and those who had already invested more than £50,000 in PEPs and TESSAs were not penalised, as had been widely rumoured.

Don't Retire

Less palatable, however, is the withdrawal of capital gains tax retirement relief over a period of years. Farmers, family company proprietors and small businessmen contemplating retirement seem hard hit by this measure and, despite the sop of the new taper arrangements, this measure does appear unduly vindictive and goes against the Government's avowed intention to promote the small business. It also brings no needed simplification to the capital gains tax regime.

Businessmen contemplating retirement may decide to soldier on, when it is in no-ones interests for them to do so, simply because of the tax cost of selling up.

Closed Loopholes

Some wealthy taxpayers will be affected by the closing of tax loopholes regarding offshore trusts, but the changes made were hardly a surprise. Professional advisers may also be relieved that they will no longer be asked to advise their clients to go abroad for a short period of time in order to realise assets and save capital gains tax - going abroad for a short period will not bring exemption from capital gains tax on assets already owned in the United Kingdom before temporary emigration.

Carers

The Government is at last recognising the role of the 'carer' in modern society, and the £millions (or perhaps £billions) saved by marriage partners or others who care for a relative at home. This is particularly relevant to the elderly client where, in many cases, one party to the marriage may be sick or disabled and the other is the carer.

Recognition of this was long overdue and formed part of the Chancellor's speech, as he granted the additional personal allowance for income tax purposes to women with children who have an incapacitated husband living with them. This relief is backdated to 6 April 1997.

Giving

Another minor measure was the new Gift Aid arrangement whereby certain gifts of £100 or more, even if paid in instalments, would benefit charities by the appropriate tax rebates. This gives more flexibility to personal giving, which many older taxpayers still do, but where the former £250 Gift Aid minimum was something of a barrier.

A Warning

One does speculate as to whether radical changes in the inheritance tax regime may have been only deferred for a year. However, for the moment tax planning for retirement and death is alive and well. Will planning, United Kingdom trusts, exempt gifts, potentially exempt transfers and the like can still be effective. Any future changes could, of course, be retrospective, but it does appear that professional advisers and their clients have been given a year's grace.

Perhaps the biggest threat of all lies in the intended general anti-avoidance rule, to be the subject of a forthcoming Government White Paper. This thrust is also mirrored by the Contributions Agency and Customs and Excise, and illustrates the Government's firm intentions in this respect.

The writer stands by his view, expressed in Elderly Client Adviser in Volume 3 Issue 1 (see Ingram Part 2 at pages 17/18) that the current Government sees little or no difference between tax avoidance and tax evasion, and this has again been illustrated by the very recent raids on a Big 6 accountancy firm by officers of Customs and Excise.

It seems that even disclosure and (at least) part payment will not protect taxpayers and their advisers from drastic action if the Revenue authorities suspect a tax 'scam' - be it legal or illegal. Currently, it does appear that the various Government agencies are attempting to pre-empt proposed changes in legislation.

This scenario should therefore be seen as a warning to taxpayers and their professional advisers. Sophisticated avoidance schemes entered into in the past may survive, but purposive legislation, simplicity and compliance ate the watchwords of the present and immediate future.

John Newth