Guy Broadfield, Senior Associate, Burges Salmon

Hello and welcome back to Death and Taxes, a private wealth podcast from Burges Salmon. It's been a little while since our last episode, but we wanted to bring you a bonus episode today to share our initial reaction to Jeremy Hunt's Autumn statement announced on Wednesday the 22nd of November.

Death and Taxes will be back with a revamp in 2024 and together with me, Guy Broadfield, and my colleagues Tim Williams and Edward Hayes, we will bring you our thoughts on the major issues affecting private clients ahead of the general election.

So, back to today's bonus episode, we are delighted to be joined by John Barnett, a partner in the Private Client team, who has worked at Burges Salmon for nearly 25 years. He is a member of the Chartered Institute of Taxations Governing Council and has led a large number of capital tax policy discussions with HMRC and the treasury since 2006, so Ed, I'd like to bring you in now and if you could kindly set the scene about yesterday's announcement and then John will ask you for your detailed thoughts.

Edward Hayes, Director, Burges Salmon

Thanks Guy, well it was interesting, the Autumn statement yesterday, we had lots of policy bits and pieces, kind of leaked out the week before, lots of things trialled and trailed and papers talking about what may or may not happen. In the end not much of it happened, at least for many of our clients, there were a few things that might be relevant to high net worth individuals and their structures, and we'll ask John to comment on those in a second, but it may be that we get to, actually, the core of this is what didn't happen, and what it might mean for next year.

So, John, in terms of what we did see yesterday, what did you think was most interesting for private clients?

John Barnett, Partner, Burges Salmon

In a sense, as you said just now Ed, the most interesting thing was what wasn't said and what might be coming down the track, but I mean there were some announcements yesterday, National Insurance contributions was obviously the single biggest issue, unlikely to affect our clients, high net worth individuals that much, in that most of them will, if they are earning, will be above the threshold for that anyway so we'll be still paying an extra 2% on the excess above the threshold, that'll be a small saving for them below the threshold.

There was an extension of Enterprise Investment scheme and BCT, which was due to Sunset in 2025, I don't think anybody thought that was going to Sunset, but it's nice that they have given a bit of certainty to that, through till 2035, so those reliefs which have worked well, and are now working broadly as they should be, will be extended through.

There was, as always, a little bit behind the scenes, when you dig into the detail, so, there is a technical consultation on pensions and how you abolish the lifetime allowance, which was pre-announced quite a while ago now, but they're just getting into the detail of that and there is a suggestion in there, which the professional bodies and others are looking at, as to whether abolishing the lifetime allowance might cause income tax problems for people who die before the age of 75, leaving a lump sum to their children. At the moment that's income tax and inheritance tax free and there's some suggestion that the income tax freedom from that might be affected by the with the abolition of the lifetime allowance, so, we'll have to watch this space on this one, it's a highly technical change in part 15a of the legislation.


I'm sure our listeners are very familiar with John.


Yes, one of those things that us tax nerds really love, but one of those technical details that possibly wasn't apparent on the face of the Jeremy Hunt statement. I can't think why on Earth he didn't mention it in the chamber of the House of Commons.

There were a few other bits and pieces, so, you may recall that the office of tax simplification has been abolished in the last budget, and they wanted to embed tax simplification throughout the revenue and treasury, now there was always a question as to whether the revenue and treasury would be up for tax simplification and whether that was words. They have now come up with some policies around that, and around how all new measures must have tax simplification at their hearts, and principles that must be followed, and an annual report that will be produced on that, that, I think, could be interesting in due course and one that hopefully we'll see some genuine simplification going on in the tax system which is long overdue.

There were some other bits and pieces, the annual tax on envelope dwellings, this is the tax that you pay if you own residential property through a corporate structure, through a company, whether a UK company or an offshore company, that gets uprated every year, and this year it's going to be uprated from next April by, I think 6.7%, so quite a sizeable increase in those, mainly due to the rate of inflation back in September.

And then, some technical changes to Real Estate investment trusts, Real Estate investment trusts, quite a specialised vehicle for holding UK land, and initially there were only a few of them, there's now I think 130 of them, and they're making some more technical changes to those, hopefully to encourage that market a little bit more. So, very high-end sort of property-owning structures that might be one to look out for in due course.

And then some changes to those people who have to file self assessment returns, that probably doesn't affect our clients directly, it's more aimed at the thousands, well indeed hundreds of thousands of small taxpayers who inadvertently have no tax to pay but are still forced to file a tax return and then get a penalty even though there's no tax to pay. I think last year there was something like 400,000 individuals who had absolutely no tax to pay but still got at least a £100 penalty, for failing to file a return to say there was nothing due, they're hopefully upping all of those limits to take people out of that, and that could affect, you know, clients families, particularly where, you know, the family as a whole may be wealthy but there may be children or other individuals within the family who really shouldn't be filing tax returns.


And it's not as though tax and common sense necessarily go together, but that does at least sound like a common-sense fix, for a lot of people and I saw last year there's some campaigns trying to push that, so it's kind of good to see that's been listened to.

So, I think it's fair to say there are a few bits and pieces for the advisers, we can always find something interesting for us, but for those who are trying to write headlines and articles about the Autumn statement, actually there is little to put into those, and so for our clients what is more interesting is, well what does this mean for next year and how does it set up. What we all expect to be quite an interesting kind of policy discussion between the main parties ahead of the election, the ground they will try and win from each other and the, I suppose the flexibility they now have to push for different things, when I was looking at the numbers yesterday, I noticed the office of budget responsibility was saying that actually, if you take Jeremy Hunt in his word is the amount of headroom he's got, and I know there's discussions to how real the headroom is because it assumes various things happening in the future, which may, may not happen, but let's hypothetically say that is genuine head room for changing fiscal policy. He's basically spent most of it now, so it's gone on the National Insurance changes, it's gone on the changes for businesses and actually some big ticket things that we thought might happen, for example, changes to inheritance tax, there's not much money left in the pot to do that now, and so if we look ahead to next year, first of all how does this impact potential timing of elections and secondly, do we think there's still a rabbit from a hat potentially in the budget next year, assume that budget goes ahead?


So, on inheritance tax in particular I was confident that nothing would be said about it, there's always this three-party conference speculation, where various interest groups are all putting out their policies, and you saw that a few weeks, a month or so ago, just before the party conferences, there's always speculation on various interest groups, both within and outside parties again, trying to push their particular line leak things to the press, leak things to the telegraph about what might happen, and you can usually guarantee, I think that, you know, if you get stories in the telegraph about inheritance tax that's probably not going to happen, sorry that's me being slightly cynical but, I wasn't expecting there to be changes to inheritance tax, and the main reason for that is inheritance tax actually isn't a vote winner, it's a vote loser, so there's perception that it's not a popular tax, and it isn't a popular tax, but whatever you do to it seems to loose you votes rather than gain you votes, so the best you can do probably is what John Major did in 1995 and say, well our ambition is to abolish this as and when the time is right, and yeah we're still waiting since 1995 for that to happen. There’s nothing wrong with a long-term goal and I can see it being another manifesto commitment to abolish it when time is right.

The other thing that was interesting for me, actually was Labour's reaction to the Autumn statement, naturally they criticize it but actually they then said, but we won't reverse any of this and that seems to be actually where the conservatives are going at the moment, they are trying to create clear blue water between them and Labour on things and Labour just aren't taking the bait on anything, at the moment, you know, the Conservatives I don't know could have, you know, announced tax on all blue-eyed babies, you know, or something like that and Labour would say that they were going to, you know, not reverse that because they don't want to take the political bait at the moment.


As a man with two blue eyed children, I will strongly obey such measures, but that's good to know.


Yeah, so, expect more of that over the next year, the Conservatives really trying to find things that will differentiate them from Labour, but as you say in terms of headroom to do anything eye-catching, in terms of actually changing big ticket items which cost money, I don't think there's the headroom to do it, so it's going to have to be, sort of, around the margins.


Do you think, because, you know, it's striking that you've got Tory back benches at the moment, who are very much, pledging not to vote for anything that raises the overall tax burden further, you've then got the fiscal headroom there may have been having been spent, so you've got a kind of cap on what you can do to raise more funds and a cap on what you can do in terms of spending any funds you had in the first place, which does seem to rather box in the chancellor for next year, something that we've talked a lot about in the past is of course the non-dom regime and potential changes to that, the numbers for the non-dom regime are obviously controversial, there's lots of debate about how much would it cost overall to amend that regime, you know, obviously if you reduce the reliefs available then theoretically there's more tax to pay but actually the behavioural responses can mean that the overall amount goes down and there's lots of academic discussion as to where you would fall on that range.

Do you think that could be something actually that, you know, the Conservative government looks at and thinks well we know that Labour have made promises to change this, it's not actually hugely expensive to change potentially, or at least you can argue it's not expensive, does the Autumn statement have any bearing on the likelihood of seeing a change to that next year?


I still would say it's very unlikely that conservatives will now do anything about it, the time to do that was, it wasn't indeed this Autumn statement it, wasn't indeed last spring budget, it was probably the Autumn statement before that, was really the time they needed to do that because the technical changes you would need to bring that in and actually make, that was making a fiscal difference would, there's an 18 month to two-year time lag really to make those changes. I mean, it's always struck me the one thing they could have done on that, which would be sensible, would be to announce an amnesty of some description for remitting of past year's income and gains. Either a complete amnesty or, to say, you know, actually you can remit last year's, well previous year's income and gains if you're non-dom and you will pay a 5%, 10%, 15% flat rate tax. That would bring money into the UK economy, it would simplify things and it would raise some taxes, it would also take some of the sums out of Labour's, sort of, between two and three billion that they're saying they'll raise from it, so economically I've never understood why the conservatives haven't chosen to do that, because it seems to make good economic sense, but politically I can fully understand why they haven't done it because the non-dom issue is a completely toxic one, and it's anybody who mentions it, you know, it doesn't play well so the conservatives really don't want to be, seen to be touching it, if they were going to they would have done it as said 18 months ago.


And John, politically from a Labour perspective, the reform or abolition of the non-dom tax status is not loosing momentum in terms of their announcements, and only yesterday Rachel Reeves said Labour's pledged to cut hospital waiting lists and investing an extra £1.1 billion pounds a year would be funded by abolishing the non-dom tax status, so it's interesting to see once that's linked to a specific spending project, we're going to have to consider what it means for clients going forward because it's becoming more and more likely that something will indeed change if there's a Labour government.


Yeah, so the original figure that Labour came up with was £3.2 billion, which was the number they got from the Arun Advani and Andy Summers report, which I actually helped contribute to a little bit, I mean their numbers were wrong and we've criticized those numbers, and a number of assumptions they've made in there, interestingly Labour's numbers have come down recently from £3.2 billion to £2 billion and there is apparently some treasury research out there which says the number is lower because the treasury have better data on the behavioural effects it would have.

Labour have then scaled that back, so having in previous announcements, you know, spent that money probably 10 times over in the number of things they're going to do with it, they are now being very clear that that money is hypothecated for the NHS, just as VAT on private school fees is hypothecated for educational reform.

I suspect what that means, in terms of what Labour will do, they've said there will be a consultation on non-doms, and it will all take a while, take a while to get legislation through, my best guess is actually they will do something fairly minimal, so probably rather than taking away domicile as the connecting factor at all, I suspect they will just reduce the current 15-year limit to, well at the moment they're saying five, I suspect after consultation that might be, for instance, something like seven and they might take away something like protected trust status in the future, if you were doing something now, I would still say it was probably a good idea to be setting up a trust now because there is a chance that a trust set up today might benefit from some better grandfathering treatment than a trust set up later so if you're a non-dom today that might be worth looking at.


Well John, just like to say huge thank you for your insightful input and analysis of what was announced yesterday, always good to have the high level points, and, indeed add a little bit more detail as well for practitioners and clients alike, so thank you very much and we look forward to hearing you again on Death and Taxes over the course of the next year when we get a little bit more detail about tax policy and possible changes in the lead up to the election.

So, Ed, in terms of a summary of today's discussion, what are your main takeaway points?


Yeah, thank you Guy and as you say thank you to John, his expert opinion is always, always valued, I think he can explain these points far more eloquently than I can, but the key takeaway from me, there's bits and pieces that are announced that will have an impact but actually most of those will be relevant to advisers rather than clients, clients if they have a trading company, they'll see some changes but for their own personal tax affairs, the Autumn statement won't have an immediate impact.

The more interesting angle is, what does this mean next year, in terms of the Conservative government's room for manoeuvre, they've spent basically the money that they found they had available, they're a little bit boxed in by pledges not to raise the tax burden further, and so if you've got on the one side a promise not to raise tax and on the other side you've spent the money you've had available, the implication is you won't be able to make a really significant change unless it's, kind of, fiddling around the edges, so that may mean the chances of something changing next year have gone down as a result of the Autumn statement.

One thing that possibly the chance of has actually increased is the prospect of an earlier election, I know George Osborne was saying that, kind of, immediately as a response to the Autumn statement, saying well maybe this is them pulling what rabbits they can grab out of their hat and trying to lay the groundwork for maybe a May election, I think our views that's still less likely than a later election, but it's more likely than it was on Tuesday.

And finally, in terms of kind of where clients should be going at this point, it's hard to plan when you don't know what the rules are going to be, but it is still better to consider doing things now than to completely ignore it until we start getting manifestos because actually depending on a client situation there may be things that are obvious to do now or there may be things that are still a better bet than not to do now and if they leave it, some of those opportunities may go so as ever, the sooner you take advice, the better, and we look forward to seeing how these things pan out next year.


Thanks again for listening to this bonus episode of Death and Taxes, the private wealth podcast from Burges Salmon.

You can listen to our previous episodes and get in touch with the team at burges-salmon.com or on our LinkedIn page.

Keep an eye out for new episodes coming in 2024 focusing on everything from the proposals to abolish the non-dom regime, to fundamental changes to inheritance tax. Our specialist team will bring you our views on the policy choices in play and their practical implications for clients, so don't forget to subscribe and thanks again for listening.