I am not a political commentator, but I am sometimes a tax commentator.

14 Apr 2015

Firstly, some possible thanks to the PM for announcing a plan to allow people to leave homes and other assets up to a value of £1m to younger family members tax free from April 2017 (Younger? Family? See how loop-holes happen?). The plan will be paid for by imposing higher taxes on pension savings of people earning more than £150,000 a year (these people being too dim to invest elsewhere, it seems). Winners and losers, I suppose. According to The Sunday Times, 6% of estates are liable for IHT but this will rise to 12% by 2019. The Conservatives’ plan will keep the level at 6%. The individual tax-free allowance will be raised from £325,000 to £500,000 giving a married couple a combined £1m tax-free fund. This may ease the planning I need to do for some clients, but right now it is only an election promise (or for some pensioners, a threat).

Labour have said that should they win the election they will attempt to claw back £7.5bn a year by closing tax loopholes and clamping down on avoidance and evasion. You shouldn’t be “clamping down” on avoidance which is legal and that just about everybody does, encouraged by successive governments and I’m getting pretty tired of sloppy thinking in this area. Ed Balls told the Observer: “We will close loopholes the Tories won’t act on, increase transparency, toughen penalties and abolish the non-dom rules. And our first budget will make sure that following an immediate review of HMRC, it has the powers and resources it needs to come down hard on tax avoidance and evasion.” Quite why he didn’t do this when he was in power a few years ago and the situation was much the same he didn’t explain, but a lot of money has been “saved” by reducing HMRC resources.

Further along the taxation trail, Nick Clegg has unveiled plans to increase tax payments on share dividends by 5% to 37.5% for investors paying the higher rate of tax while those on the additional (i.e the even higher than higher) rate would see tax on share pay-outs increase from 37.5% to 42.5%. Experts said the plans would encourage companies to borrow rather than raise money by issuing shares but Lib Dem sources said policies were being built which would make debt financing less attractive. Is this a policy of preventing investment? Are they mad? The Sunday Times says the raid aims to target executives who cut their tax bills by paying themselves through dividends rather than a salary, however, it will also mean 1.2m investors paying the 40p rate and 200,000 higher rate taxpayers will be affected.

I don’t like to over-do the non-doms bit, but The Sunday Times pointed out that the Governor of the Bank of England, Mark Carney, has non-dom status, as do the heads of Lloyds and Royal Bank of Scotland, the CEOs of HSBC and Aviva and the incoming chairman of Barclays. Ed Miliband last week described the tax break, which allows people with a permanent home abroad to avoid paying UK tax on their overseas earnings, as “indefensible”. At this rate we may have to end up hiring more British People for top jobs, although government policy seems to have been that nobody in this country knows how to run a business. Perhaps they are all football supporters.

HMRC meanwhile continue to try to raise money when none is due whilst not chasing difficult cases where it probably IS due. Our colleague Mike Down at Baker Tilly has extracted some information from HMRC that suggest they are treating the innocent mistakes on tax returns as deliberate in order to reap larger penalties. In the tax year 2012-13 penalties were issued to just over 5,000 taxpayers on the grounds of "deliberate" actions, but his rose to 14,000 in the 2013-14 tax year. Taxpayer behaviour is unlikely to have altered so significantly from one year to another. I have suggested before that officials under pressure to increase revenue may be inclined to treat the accidental as deliberate and indeed this seems to be the default position, and this is the unacceptable mirror image of “aggressive tax avoidance”.