The 2024/25 tax year is one in which we will have a general election with Rishi Sunak setting the date for 4 July 2024.
March’s budget was the last of the current government, and we will have to wait and see whether a new government, whichever party is voted in, will announce an immediate post-election budget, or follow the pattern of recent years with an Autumn statement to set the scene in preparation for a full budget in March 2025.
I am not going to try to predict an election outcome but do expect some significant changes, whatever the result, to start dealing with the economic issues facing the UK.
I would suggest that most new governments look to deal with difficult matters early in a post-election cycle. The logic being that the benefits of such policies may well be evident before the next one.
Therefore, it is unusual to see significant changes to niche tax provisions unless there is a strong political motive to do so.
On the basis that the Finance Bill No2 2024 passes through parliament and becomes law there is no persuasive precedent that a new government would backdate changes effective from 6 April 2024. A new government with a healthy majority and a mandate could hold an emergency budget post-election and announce changes that would be effective from the date of giving such notice, but we shall have to wait and see. What this means is a short period of relative certainty but a probability of material changes in the rate taxes are levied at some point on or before 6 April 2025.
If we do have a change in government, I predict a rapid ramping up of HMRC activity, with additional funding, to combat tax avoidance and accelerate tax collection. I also see some changes to headline tax rates, mostly affecting those with highest incomes and wealth. But I see little chance of any fundamental changes in the way taxes are levied in the UK until at least 6 April 2025.
Learning from Chancellor Sunak's tax changes
As Chancellor, Rishi Sunak telegraphed intentions to restrict Capital Gains Tax Entrepreneurs Relief and then increases to taxes on dividends with the effect of a significant acceleration of people crystalising capital gains and paying dividends earlier.
The impact of both was a significant acceleration of tax collections. I suspect a new government may well do the same, telegraphing tax rises from 6 April 2025 and in consequence optimising the collection of taxes for the 2024/25 tax year. A typical sales trick, take it now and pay less or take it later and pay more.
Tax observations for a new government
My observations are predicated on any new government having to take stock and prioritise what needs to be done and when. As suggested, targeting revenues from countering tax avoidance and fraud and adjusting rates of tax is relatively straight forward. However, looking at changing the basis of administering tax and how tax law is applied requires time and significant planning and in consequence radical change is probably at least one to two years away. Any new government will have to tackle the most pressing issues first.
Changes to the nuanced taxation of chattels and wasting assets is unlikely to feature on any politicians top 10 of taxation matters to be amended.
In a nutshell, rates of tax for the near future have, in all likelihood, been set. If there is a change in government then we can expect increases in tax rates and an increase in activity combatting tax avoidance. In particular:
- We are likely to see an increase in the rate of Capital Gains Tax, (the reduced rate for residential properties will be short-lived). Whether there will be a reduced rate applied to business assets remains to be seen.
- Income tax rates at the top end are likely to increase but I think not at the lower end.
- The current proposed changes to the “Non-Dom” rules will be amended (this I expect to be motivated by political objectives as well as raising revenues).
- A possible reversal of the National Insurance cuts backed by a promise of additional funding for the NHS and Education (Again a political choice to demonstrate a willingness to invest where arguably most needed).
What I do not see is any knee-jerk changes to the way in which tax is administered or levied as any new government will have to prioritise what it does in the first year or so after being formed. Dealing with trading relationships within Europe, kick-starting the economy and addressing the provision of public services are likely to take up the vast majority of Parliament’s time leaving precious little to amend detailed tax legislation affecting a small subset of individuals who invest in fine wines and similar tangible assets.
Predictions for the coming tax year?
2023/24 was a steady year for fiscal policy following the disaster that was averted following the Liz Truss/Kwasi Kwarteng mini budget in September 2022 and, for the time being, 2024/25 also.
It appears that the Bank of England is beginning to get inflation under control but at some cost to many mortgage holders. There are indicators that interest rates may start to reduce, but the continuing strong US economy may mean that this does not happen any time soon. In addition, inflation is currently being driven by supply rather than demand and interest rates will have little impact if energy prices rise again in the short term.
Taxes remain high with the National Insurance cuts more than offset by the fiscal drag due to the freezing of personal income tax allowances, a reduction in the Capital Gains Tax annual exemptions and an increase in the rate of Corporation Tax.
On the positive side the freeze on alcohol duty that started on 1 February 2024 has been extended by six months to 1 February 2025. At least that bottle bought and consumed or pint at your local will only increase by reference to other factors.
Trade with Europe continues to be an issue with new border checks for imports likely to add cost and possibly delays but do little to guarantee the quality particularly of perishable goods and the like. Possibly a changing of the guard and a softening of the Brexit ideology will serve to address some of these issues but it is difficult to see any short-term fixes unless we, in some form, re-enter the EU customs union and or the single market .
What if anything does this mean for the investing population, and particularly those who invest in fine wine fine? Firstly:
- I see the Chattels Exemption and Wasting Asset provisions relating to Capital Gains Tax to be safe for at least a few years. There will be little or no time for tinkering with tax legislation at the fringes.
- Those individuals who trade and are subject to income tax on profits may well see higher rates of tax and those making sales triggering capital gains could see similar rate rises.
- If you have residential properties that you intend to sell then there is probably only a short window to take advantage of the new reduced rates.
- If you have assets pregnant with gain and commercially now is a good time to sell, then taking advantage of the 20% Capital Gains Tax rate, and 10% on a lifetime limit of £1m on the sale of qualifying business assets, may be a good call. My experience would be to avoid tax planning by triggering a capital gain simply to access a tax rate without a third-party sale as I have rarely seen this to work over a career in tax spanning 30+ years.
My conclusion is that the tax treatment of investing in fine wine, at least for the short term, remains materially unchanged from 2023/24.
Good tax planning should only be relevant if we are transferring value or if we are making taxable profits or chargeable gains. If we invest to achieve capital growth or generate profit, then this is our primary objective and managing our tax affairs is an important but secondary step. Transfers of assets, however, often generate dry tax charges (tax is payable without the receipt of cash). Dry tax charges are the most difficult to fund, and a shock if triggered accidentally, so I advise caution before transferring any assets and recommend taking good advice before action is taken.
Peter Owen is an independent tax specialist and director of Gatwick Enterprise Tax Services Limited. The Vin-X Report on the tax treatment of fine wine for the tax year 2024 / 25 will be published following the general election. You can view the 2023 / 24 edition for insight.
IMPORTANT: No tax advice is provided in this article and individuals should seek professional advice from their financial advisor.