Tax Day 2021 – Don’t Worry About Blinking, There Isn’t Much To Miss
Our first ‘Tax Day’ has been and gone. Despite the hype there was little to get excited about. This briefing contains a summary of the key announcements and policy initiatives. It may appear that there is little of interest in this summary, and to all intents and purposes you would be right in that summation. However, there are some important consultations that have been launched and as much as tax payers may have avoided a Covid-19 ‘hit’, we do have an Autumn Statement not too far around the corner.
Tax Day: 23 March 2021
‘Tax Day’ as it has been dubbed, marks a new initiative from the Treasury. It separates Budget day decision making, from the future thinking and consultation process. Consultations will seek views on desired changes and modernisation to the tax system to make it more efficient and fairer for the future. Aspects of these will usually be considered and announced along with the annual Budget.
As a new initiative, industry professionals speculated widely as to what we may see on 23 March. The flames of speculation were fed yet further by what was a rather underwhelming Budget 2021 (3 March). Many had been expecting the Treasury axe to fall heavily in the wake of the Covid-19 pandemic as the Chancellor seeks to recoup a significant deficit in the national coffers. It had been thought that the Capital Taxes system (Capital Gains Tax and Inheritance Tax) had been spared in the budget, ripe for picking off in the Tax Day announcements. Likewise attacks on pension reliefs were anticipated, as well as mootings of a wealth tax.
What we got this week was something more sedate. There are some progressive plans for the next 10 years as HMRC looks to modernise. But while tax-payers (and advisors) remain relieved in many ways they are aware that the clouds of change are still hovering.
Inheritance Tax (‘IHT’)
The headline here is that there are no substantive changes to the Inheritance Tax system. Albeit the Nil Rate Band Tax Free allowance had already been frozen until 2026 in the 2021 budget, which will no doubt slowly drag more and more deceased estates into the IHT net.
That said, HMRC has announced the intention that from 1 January 2022 over 90% of non-taxpaying estates each year will no longer have to complete IHT forms when making an application for Grant of Probate/Representation. How this will work in reality is an unknown and it will be interesting to see how far HMRC can go in reality, while still achieving the goal of being satisfied that all deceased estates have been properly vetted for IHT liabilities. Reporting of deceased estates for Non-UK Domiciled individuals holding UK immoveable property is also to be simplified.
As a welcome addition, the temporary provisions for those dealing with a trust or estate during the pandemic – IHT reporting requirement and the relaxation of the need for physically signed returns (wet signature), is to be made permanent (i.e. electronic means is permitted).
In many ways the provisions of the Tax Day announcements revolve around a distinct intention to make the tax system more modern and efficient – a 10 year plan.
To that end: the Making Tax Digital (MTD) initiative is to be invested in further and extended, with the aim of covering all income tax payments via self-assessment by April 2023. A consultation has also been launched on how to make the tax system more efficient, whether tax payments on account (instalments throughout the tax year) should be made more regularly and how the UK Revenue can be made more accessible in helping tax payers ensure their tax reporting is correct.
There is also to be a review of the effectiveness of the Office of Tax Simplification (OTS). The OTS is the body tasked with modernising the tax system and reviewing how the collection and reporting of tax can be made more straightforward. This will be an interesting review, given that the OTS has been active since 2016. It is arguable that some of HMRC’s most convoluted policies and unhelpful changes have come about under the nose of the OTS in recent years!
As a very welcome review, the Treasury has announced that it will look to promote better regulation of tax advisors so that standards are improved. This will include the requirement or tax advisors to obtain mandatory indemnity insurance. We sincerely hope that this is followed through with conviction as a key element in improving how the tax system operates and how individuals interact with the same.
Consultations have been launched into how to further ensure that individuals with offshore interests pay the right UK tax. This appears to be a wolf in sheep’s clothing approach in that the wording talks of encouraging and helping offshore clients get their UK tax reporting right. However, there is strong talk of beefing up measures to tackle promoters of tax avoidance schemes (freezing assets, closing down companies) and this will likely come through in the next Finance (Act) Bill.
The wording used by the Treasury is that there should be ‘No Safe Havens’ when it comes to international tax and the avoidance of UK Tax. Many of the measures that we have seen since the 2012 Finance Act have sought to extend the impact of UK taxation for international clients and the Common Reporting Standard (CRS) has made the world a smaller place in terms of where and how clients hold their international assets. We expect this trend to continue as HMRC systems and intent become more sophisticated and their international reach extends (via bilateral agreements).
There will be a clamp down on the use of Holiday Letting reliefs. The government is concerned at the rise of taxpayers claiming relief for second home holiday lets. They feel that the system is likely being abused. We will wait to see what comes in respect of this in the Autumn Statement.
Other announcements of note:
- There will be a review of the business rates system, something that business owners have been calling for, for some time. This will conclude in the autumn and we may see something about this in the Autumn Statement.
- Consultation has started on a revamping of aviation taxes, potentially with a view to increasing taxes on longer haul flights as the industry pushes towards carbon neutral by 2050. We will wait to see how this will impact our wallets in the coming years.
- A review of the trust taxation system has been completed and the result is that no changes are recommended. This is of course heavily linked with any changes that may come on the capital taxes front. As it stands, there will be no changes.
- Social Investment tax relief – The initiative providing tax relief for social investment is to be extended until April 2023.
Just as we had expected heavy revenue-making tax changes (personal tax) to come in the 2021 Budget and they did not, likewise we see little of note in the first Tax Day. This is, in essence, good news for the tax payer who has (so far) not been hit hard by Covid-related revenue raising measures.
However, we now look to the next headline: the Autumn Statement. The usual speculation will no doubt abound as to what will be announced in that statement. However, the substantive changes that have been anticipated and discussed as regards UK Capital Taxes (IHT, CGT) would (we suggest) require significant consultation with the industry and would take some time to implement. It is therefore arguable that we may see little more in the autumn than we have this month between Tax Day and the 2021 Budget. It is perhaps a surprise that any consultation on Capital Taxes has not been initiated now, with a view to implementation in the 2022 Budget. In terms of IHT, we should remember that, as matters stand, this tax raises comparatively little in proportion to the other headline tax revenues. Any decision on IHT is likely to be heavily driven by the political climate and we are of course by March 2022 edging much closer to an election.
In all, it is positive to see HMRC embracing change and the need to modernise. It is also a relief that no knee-jerk reactions, in relation to big revenue-raising taxes, have been made thus far. The Chancellor and Treasury are aware of the precarious economic position. The risk of making sweeping changes now may not have the desired impact and could also be counterproductive to the clear aim of simplifying the tax system.
We look forward to the Autumn Statement. In the meantime, do contact our team who are happy to answer any questions or queries that you may have.
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.