What to Do and What to Expect in Next Week’s Spring 2023 Budget.
As we approach the Budget (Wednesday, 15 March), it is important to be aware of the changes that could affect your personal finances. One area that will come under increased scrutiny is tax compliance, as HMRC receives additional funding to tackle tax fraud and compliance risks among wealthy taxpayers. In addition, changes in personal tax rates and allowances, as well as potential reforms to non-dom taxation and increased transparency requirements, mean that it may be wise to review your tax planning strategies both now and in the new tax year.
Personal Tax Rates and Allowances
While the 2022 Autumn Statement did not announce any headline rate increases in personal taxation, the income tax personal allowance and higher rate threshold will be fixed at current levels until April 2028. This means that significant revenue will be generated by ‘fiscal drag’, as various thresholds are lowered from April 2023. For example, the income tax additional rate threshold will be reduced from £150,000 to £125,140, the dividend allowance will fall from £2,000 to £1,000 (and then to £500 in April 2024), and the CGT annual exempt amount will be lowered from £12,300 to £6,000 (and will drop further to £3,000 in April 2024).
As a result, taxpayers may want to consider accelerating income payments, such as dividend receipts, or disposals to the first quarter of 2023 to take advantage of the current, more generous tax-free allowances. Tax advisers will keep an eye on further reforms or rate increases being announced in next week’s Budget.
Non-Doms
While the introduction of a capital gains tax anti-avoidance provision was announced, no changes were made to non-dom taxation in the 2022 Autumn Statement. However, given political pressure to review the regime, this Budget may see the introduction of reforms. Jeremy Hunt is on record as favouring the regime so the scrapping of the regime entirely is unlikely.
Transparency Requirements
Transparency requirements continue to trend towards increased disclosure globally. In the UK, the Trust Registration Service, first introduced in 2017 as a register of the beneficial ownership of trusts, was expanded in scope, with a 1 September 2022 deadline for registering most trusts brought within the widened rules. A new register of overseas entities was also launched on 1 August 2022, requiring such entities owning land in the UK to register with Companies House and provide information about their ‘beneficial owners’. Already, we have seen various media “scoops” on who owns what property.
However, a significant judgment by the CJEU on 22 November 2022 struck down provisions of EU law that give the general public unfettered access to information on the beneficial owners of legal entities. While this has no immediate legal impact on the UK, as it is no longer subject to EU law, it may create political difficulties. The UK had previously extracted commitments from Crown Dependencies and British Overseas Territories to introduce public beneficial ownership registers by the end of 2023. There is some speculation that offshore jurisdictions may use this decision to delay implementation. The Crown Dependencies have issued a joint statement that they are reviewing the implications of the ECJ judgment and in the meantime have put some measures on hold. Furthermore, the EU privacy rights were enshrined in UK law: there may be a UK action challenging the some of the provisions giving public access to beneficial ownership information.
Tax Compliance
The 2022 Autumn Statement allocated an additional £79m to HMRC over the next five years to tackle tax fraud and compliance risks among wealthy taxpayers. This means that private clients and their advisers should expect increased scrutiny of their affairs by HMRC during 2023. Following the Supreme Court’s rejection of staleness as a defense to discovery assessments in HMRC v Tooth [2021] UKSC 17, HMRC had a number of wins in discovery assessment cases in 2022. This, combined with the additional funding for tax compliance, may encourage HMRC to choose discovery assessments as a routine method of tax enquiry.
