If the Brexit referendum was an earthquake, then last Thursday’s General Election was a major aftershock.
There is no denying that the result has shaken the political community, businesses, investors and the country to their cores.
With a deal between Theresa May’s minority Conservative Party and Arlene Foster’s Northern Irish Democratic Unionist Party (DUP) expected to be the only viable option to keep the Tories in government, the country watches to see what happens next.
We do not yet know what the terms of such a deal will look like. There has been widespread reporting of what the DUP’s manifesto says about Brexit. The DUP’s stances on the likes of abortion rights, gay marriage and LGBT rights, not to mention how any deal could affect the Good Friday Agreement, have also attracted much attention. Both parties have, so far, been reticent to provide any details.
What we do have are the two parties’ manifestos to examine and by doing so we can see, at least, in the field of taxation, that there does appear to be some significant common ground between the two.
Elections are taxing
The Conservative party’s manifesto, though silent on major tax changes, did propose to increase the personal allowance to £12,500 and the higher rate to £50,000 by 2020; to reduce corporation tax to 17 per cent by 2020; to introduce tougher regulation of tax advisory firms; and to have a more proactive approach to transparency and misuse of trusts.
We can also safely assume that the Prime Minister will not consider herself bound by any of the tax and national insurance promises contained in the 2015 manifesto.
Much briefer (understandably so), the DUP’s manifesto promised to support any proposals to further increase the personal allowance; to reduce Northern Ireland’s corporate tax rate to at least 12.5 per cent; and to ensure UK-wide tax policy improvements in order to encourage economic growth in Northern Ireland.
It is reasonable to expect that the two parties will be able to agree with each other on the headline tax proposals of the next finance bill and to see lower income and corporation taxes.
Readers may also be aware of far-ranging changes to the taxation of non-domiciled individuals and non-UK trusts that have been in the pipeline for years.
Significant changes were due to be implemented as part of the Finance Act 2017 but were delayed after the snap election was called, for fear of rushing the legislation through parliament and producing unworkable rules. Yet more of the proposed changes have been deferred altogether until the Finance Act 2018, creating huge uncertainty for taxpayers who took action to prepare for the anticipated changes and altered their position based on the proposals.
These changes were intended to reduce the benefits of non-domiciled status to an individual and restrict their ability to use the remittance basis of taxation – which allows income and capital gains to be kept outside the UK free of UK tax by non-domiciled people.
The planned changes included: treating individuals who have been resident in the UK for 15 of the past 20 tax years to be domiciled for all tax purposes; treating UK domiciled individuals resident in the UK, who were born here, as always UK domiciled for all tax purposes; and to narrow the circumstances where offshore trusts would be advisable for a taxpayer.
Finally, an inheritance tax charge is proposed to be levied on the value of non-UK companies attributable to UK residential property and certain loans (and related security arrangements) used to acquire such property, ending a longstanding and advantageous tax planning practice.
What happens next?
As with all the other parties’ manifestos, both the Conservatives and the DUP remained silent on how to take these proposals forward.
The stated position of the government – before the election – was that they would proceed at the earliest opportunity to legislate for these changes. The Chartered Institute of Taxation previously indicated that that these changes would likely be introduced following the election, regardless of the result.
An election that was called in order to give the Prime Minister more clout in the Brexit negotiations and a personal mandate across the country has produced uncertainty
It would be prudent to conclude that if Theresa May is successful in brokering a deal with the DUP, and the Conservative Party forms the next government, a new finance act will be passed this year.
Perhaps at that time, at least some of the delayed proposals will be legislated for. However, given the negotiations that will need to take place on all of the next government’s agenda, it is quite possible that these changes will not be a priority at this stage.
An election that was called in order to give the Prime Minister more clout in the Brexit negotiations and a personal mandate across the country has produced uncertainty; and for what length of time is anybody’s guess.
In the interest of good government, here is a modest proposal to begin bringing certainty to tax policy: legislate as soon as practically possible for the changes which had not been deferred until 2018 and implement these with effect from the 6 April 2017 date originally proposed.
Simon Gibb is an associate at McDermott Will & Emery London.