Head of Tax
Corporation tax, which accounts for under 10% of the UK’s tax revenues and which has hovered around that percentage for years, is the primary concern following the election results.
If a minority Conservative government works with the Democratic Unionist Party (DUP), it is hard to envisage how hiking up corporation tax rates will be high on the agenda. The DUP are fiercely pro-Brexit, but they also want an open border with the south of Ireland, which will require a softer Brexit.
If the Labour party formed a coalition, it is hard to see how they could get the votes to fulfil their manifesto pledge to increase Corporation Tax rates to 26%.
The problem for business is how extremely unpredictable it is all likely to be. Changes in social policy may be a concern, but could also take a back seat. If business loses confidence in the Brexit process, it is highly likely one consequence will be profound pressure on the public finances, coupled with increasingly expensive rates for public borrowing.
Whoever forms the government, it seems that significant tax changes are unlikely to occur, as there will be more urgent short-term issues to deal with. Having said that, if more tax revenues are needed, an increase in income tax rates, some NIC increase, or tax bands to tax higher earners, could be a possibility.
In short, the consequences of this result may be to increase taxes slightly more than might have been expected.
Tax Partner, Private Clients
As the general election result is declared with no overall majority the focus will now switch to the mechanics of forming a working government.
On Brexit the UK’s article 50 resignation letter recognised that it would be a ‘challenge to reach a comprehensive agreement within the two-year period for withdrawal discussions.’ The UK’s position was that such an agreement is necessary ‘to agree the terms of our future partnership…’ However, to manage the Brexit negotiation in the best way possible, in the remaining time will be for the new government, with Irish border questions now likely to feature more prominently. The chances of no agreement being reached (‘hard Brexit’) may have increased.
General Elections are often followed by budgets but we will need to wait and see if this is the case on this occasion. A Finance Bill to reinstate the measures that were hurriedly pulled from the last Finance Act, as part of the ‘wash up’ process for the previous parliament is likely. We can then expect to see at least some of the measures set out in the Conservative manifesto, including increased personal allowances to £12,500 by 2020.
Families with home-owning elderly relatives who viewed with concern the proposed consultation on the new approach to social care fees might breathe a little easier. However necessary the funding idea, the proposal that the capped charge be payable by the estate might now be delayed.
Other difficult but necessary changes such as a long overdue reform of business rates and the Making Tax Digital project are also in danger of losing impetus as more effort is put into building the required consensus to govern.
Now the results are out, thoughts will inevitably turn to this might affect businesses, especially with Brexit on the horizon. When it comes to tax, there is much to be considered. A low corporation tax rate certainly attracts overseas businesses, which creates employment opportunities in the UK. Lowering the corporation tax rate should ultimately result in more tax revenue to the UK. But alongside this there is a potential threat of the Trump tax changes; if the US lowers corporate taxes to 15%, will this mean that fewer companies will be looking to relocate to the UK?
Solely lowering the corporation tax rate is unlikely to attract companies – this has to be hand in glove with having a good stable working environment. Fundamental to this is negotiating good trade and tax agreements with overseas countries. As the new government is formed, what can they do to increase stability, negotiate a beneficial exit and create positive international trade and tax agreements?
Head of Pension Funds
The election result creates much uncertainty for UK pensions and social care policies, as there were significant differences between the various political parties. Proposed changes in social care funding are being cited as one of the reasons for the government failing to achieve a majority, and uncertainties remain about possible changes to the state retirement age, the pensions triple lock and pensions tax relief. Trustees of occupational pension schemes are unlikely to make any significant judgements on investment markets until the impact of the current political instability has been fully considered by their investment advisors.
Tax Partner, Private Clients
For private individuals, the results of this uncertain election result could have a number of effects including continued devaluation of the pound, and an increase in inflation and higher interest rates in the longer term. This, along with the need for compromise, could see extra pressure on government to help those at the lower end of the income bracket.
Tax rises are more likely to follow in the next Budget, and I would expect to see a rise in Capital Gains Tax rates from their relatively low base, and an increased income tax burden on higher earners, probably through a reduction in the thresholds for top rate taxpayers. This is something we will be discussing with our clients moving forward.
Corporate Tax Partner
Initial reports say the pound has fallen sharply overnight, creating further uncertainty for businesses trading overseas. The opportunities for exporters created by the sterling devaluation after Brexit seem unlikely to reverse in the short term. The challenge now, is determining where those markets are.
UK assets are now cheaper. Businesses and entrepreneurs looking to realise value may find interest from foreign buyers, but importers will need to decide whether they can absorb increased costs or pass them on.
While politicians decide how to form a government, it is unlikely that there will be immediate significant changes to the tax system. The sensible approach in the short term is to plan based on the status quo.
The real concern is that this period of uncertainty will delay much needed investment by UK business, investment that will improve productivity and make the UK’s companies more competitive in global markets.
Tax Partner, Private Clients
A key area of interest here will be the changes to non-domiciled (non-doms) status in the UK that were dropped last minute before the election. Are they back on the table? As we move towards Brexit, a key concern will be attracting more inward investment in the UK. How the UK balances this whilst seeking to increase the tax take means the position for certain individuals remains unclear. Additionally, it is also important to consider whether we can afford to lose non-doms who have been resident in the UK and may take their wealth elsewhere.