Never mind the budget

Professional advisers were always likely to view the chancellor's politically astute summer budget with cynicism.

From the outset, one thing unites many of the star policy items; they will take several years to come into force, therefore their impact will be less than the headlines suggest. As ever, we have a more measured understanding now that the dust is settling.

Tax avoidance

The injection of £750m to combat aggressive evasion and avoidance will supposedly support a threefold increase in the number of prosecutions for tax offences. Hopefully we will not see flimsy prosecutions launched to meet an arbitrary target, rather than on the basis of wrongdoing.

Let's not forget that we are expecting to see the first cases under GAAR (general anti-abuse rule) filter through the courts. Depending on how the judges interpret the GAAR, we may have a better idea of how reasonable this threefold target is. Given how comprehensive the GAAR is, it is unlikely that even more legislation to combat abuses of the personal tax system will be helpful.

Non-doms

The changes to the legal status of non-doms represent a major shift for professional advisers. Coming on top of the increases to the remittance basis charge in recent years, it is not an exaggeration to say that there has been a sea of change in non-dom taxation.

The right to lifetime non-dom status will be abolished from 2017. Also, the children of non-doms born in the UK will no longer be able to inherit the status, which will likely lead to a decline in overall numbers. This said, the advisory community will be relieved that the chancellor held back from abolishing the status altogether.

Inheritance tax

We expected the tweak to inheritance tax, but it is not as generous as it appears. The relief for those who need to leave or downsize their homes is welcome, even if more detail is required on how it will work.

The £2m taper means that the wealthiest will not benefit at all. What the headlines did not say is that the full £1m allowance will only be available from 2020, as it will be phased in from 2017. Nonetheless, there is a discussion to be had with clients and some may need to reconsider their wills.

Even more significantly, the government slipped in a measure to freeze the IHT nil rate band until April 2021, an extension from April 2018. By this time the nil rate band will have been frozen for 12 years. Set against this and likely house price inflation over that period, the measure is a bit of a stunt - without mentioning how it distorts investment in favour of property.

Many non-doms and others will be affected by the expansion of the remit of inheritance tax to include all property held in offshore structures. This has single-handedly undone years of careful IHT planning. There will be a number of people who will need to take a look at their wealth preservation strategies, and make changes.

Income tax

On income tax, the chancellor is on track to deliver his manifesto promises of raising the personal allowance to £12,500 and the top rate of the basic tax band to £50,000, by the end of Parliament. However if pay continues to increase as it has done recently and inflation returns, these changes may have relatively little impact.

Some will also be disappointed that the chancellor didn't take this opportunity to initiate a greater increase now, rather than saving the larger increases for later in this term of Parliament.

Pensions

Complexity and change have become the watchwords for those of us in the accountancy sector. The chancellor's cuts to pension relief for tax payers at the top end, means that many people's long term financial planning model will have to be reconsidered. Regardless, there is likely to be a rush to maximise pension contributions before the new rules take effect in 2016.

Buy-to-let

The chancellor also took a swing at high earners who own buy-to-let properties. By cutting mortgage interest tax relief, the chancellor has hit the income of these people. However the measure isn't going to be introduced until April 2017, giving individuals time to implement contingencies. For couples, the best course of action might be to hold properties in the name of the lower-earning partner.

Dividend income

Contingency plans will also need to be drawn up for those who live off savings income in order for them to make the most of the new £5,000 allowance. Meanwhile the changes to the taxation of dividends will be welcome for some, there are many that it will effect.

Those that receive a large amount of dividend income should review their position, but any change of strategy in response should be cautious. Those who wish to extract cash tax efficiently from businesses will almost certainly need to take advice, given the complexity.

The summer budget was an impressive piece of political theatre. The chancellor managed to generate headlines and goodwill without giving away as much as initial impressions suggested.

Lucy Brennan is a partner at Saffery Champness

She writes a regular blog on tax and estate planning for Private Client Adviser

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