Emergency budget expectations
What do we already know about the Tory government's tax pledges and where might George Osborne surprise us?
With the unexpected result of the election behind us, it is certainly worth considering what tax changes we can be expected in the majority Conservative government's emergency budget.
Those with high value properties are likely to be breathing a sigh of relief, as well as many that were concerned that the income tax rate would increase to 50 per cent. Meanwhile there were many commitments that will help those with lower incomes.
The Queen's Speech revealed little beyond what we know regarding taxes, so we wait to see what the budget on 8 July will bring. In the meantime, there are some areas of tax that we know will change over the next five years and in some cases, areas that we know will not.
It has been confirmed that one of the first priorities will be to legislate for no increase in the income tax, VAT and national insurance rates. The more sceptical of us might deduce that the bands may be tweaked so the tax takes increases while the rates remain the same.
However the Queen's Speech confirmed that there would be no extension of the scope of VAT, and assured us that the national insurance contribution (NIC) upper earnings limit would be no higher than the higher rate income tax limit. If anything, this assurance may bring a reduction in the exchequer's NIC take, as well as the expected future income tax reduction.
The Conservative manifesto provided some other clues as to what the budget might include. Combined with the assurance in this Queen's Speech that there will be no increase in income tax rates, it pledged to increase both the personal allowance to £12,500 by the end of the next parliament, and the higher rate limit to £50,000 (when combined with the personal allowance).
The Queen's Speech has in part revealed the method for increasing the personal allowance, which will rise in line with the increase in the national minimum wage. This will ensure that those working 30 hours a week or less, while on the national minimum wage will not pay tax.
This does not, however, give us an indication of when the personal allowance (currently £10,600) will increase, as 30 hours on the current minimum wage is still below the personal allowance.
Where will the money come from?
How will the deficit be paid for if it is not by tax increases?
The Conservatives have pledged to crack down on tax evasion and aggressive tax avoidance and, 'ensure that those that can afford to pay the most, do.'
We could therefore expect to see some tightening of rules announced in the budget, although most advisors are now looking to see when the first cases will be heard under the general anti-abuse rule (GAAR).
There was a huge welcome relief for many with the increase of the inheritance tax (IHT) threshold to £500,000 per individual, and £1m for married couples and civil partners. This comes alongside the introduction of a new 'transferable main residence allowance' of £175,000; anticipated to be only available for your main home.
It is expected that, when this is legislated, tax relief on pension contributions for people earning more than £150,000 will be reduced, as this was the Conservative's manifesto plan for paying for the additional IHT relief.
While the election result may offer some general relief for the non-domiciled community, given the pledges to change the domicile rules, there still may be some upheaval to come. It has been reported that George Osborne is considering changing the rules that govern the non-domiciled status.
Questions will be asked about why domicile of origin or dependency follows the father's domicile, not the mother's, in most cases and, perhaps more importantly, questions will be posed about whether the non-domiciled rules should apply to individuals born and brought up in the UK.
Overall the Conservative government has pledged to cut income tax. This will even be of value to higher earners who will benefit from the increase in the higher rate band, even if they do not qualify for the personal allowance.
Those with higher value properties, often in London and the south of England, will also be able to pass their properties onto family with a reduced IHT burden. That is not to say that planning does not need to be undertaken.
Those earning over £150,000 and considering pension contributions may wish to undertake some planning pre-budget. For non-domiciled individuals it may be a case of 'watch this space.' For those that were born in the UK and have spent their lives here, there may be limited opportunity to plan.
History shows us that changes to legislation can be retrospective, as was proven when the legislation on IHT and deductibility in debt was brought in on 17 July 2013.
Lucy Brennan is a partner at Saffery Champness
She writes a regular blog on tax and estate planning for Private Client Adviser