Insights

In July, the government published draft legislation on what to expect in the Finance Bill 2022-23. It included details of consultations on changes to capital gains tax, R&D tax relief, pensions and more. This process of consultations takes place every year when Parliament concludes for the summer break and details of all the proposals are released, together with new tax legislation. When the next Parliament begins, it will be led by a new PM, but many of these announcements were already set to be legislated. No doubt there will be some new ones coming too, due to the change of leadership.

Here's a list of the tax changes we can expect for now.

Changes to capital gains tax (CGT) rules

If a married couple divorces, their assets are split between the two individuals, and this will often include dividing the family home. Currently transfers are free of CGT, but only if the division is completed in the tax year in which separation takes place; and after the end of this tax year the no gain/no loss treatment for transfers of assets between married couples/civil partners no longer applies. New proposals are in place to extend the CGT exempt period for property divisions to three years and for other assets included within a divorce agreement to be transferred on a no gain/no loss basis without time limit. It is proposed that this will be available for all disposals that occur on or after 6 April 2023.

A second CGT simplification is proposed that applies to land and homes exchanged by LLPs. This is set to allow roll-over relief and private residence relief as appropriate to apply to any gains arising. The operational date of this policy is being back-dated to 23 March 2022 when it was first announced, so claims can be made retrospectively.

Pensions

Starting from the 2024/25 tax year, all employees on ‘net-pay’ pension schemes will be eligible to claim a rebate from the government for any tax relief they are due. This is a significant improvement for lower paid employees because previously they would have missed out on tax relief even though they paid their pension contributions, simply because their earnings fell below the income tax threshold.

The way in which regular income which is paid out of collective money purchase pension schemes due to be wound up will also be clarified in Finance Bill 2022/23. This means that payments will be taxed as pensions (at a lower rate) and not as unauthorised payments. The change will take effect from 6 April 2023.

R&D tax relief

Changes are due to the R&D tax relief scheme, and we have written about this topic in detail in another article, because it affects so many of our SME clients. In essence, the R&D tax credit rules are being tightened to make the scheme less vulnerable to fraud; for instance by making small companies name a senior company officer and their tax adviser on the claim form and having to inform HMRC in advance if they wish to make a claim.

Other new ‘taxes’ – classified as levies

A series of new levies are expected to become operational. In legal terms, a levy differs from a tax because it is a way for the government to tax something and generate additional revenues, without announcing a new tax. Instead it is referred to as a ‘levy’ or a ‘duty’. New levies are as follows:

• The soft drinks levy will be extended to include drinks dispensed from fountain machines e.g. at pubs and restaurants;
• Air passenger duty is being reformed to reduce the domestic band and increase the cost for ultra long-haul flights.

Additional clarification of new taxes

Farmers receiving payments from the lump sum exit scheme (LSES) will be taxed in the same way as if they had made a capital gain.

Residential properties owned through limited companies by ‘non natural persons’, which are normally subject to ATED and the 15% SDLT rate, will have these taxes waived if they allow the property to be used for the Government’s Homes for Ukraine scheme. This is a temporary relaxation of the rules which was announced in July 2022.

Consultations over new business policies

Finance Bill 2022/23 also includes details of new consultations being launched. Firstly, there will be a consultation into proposals to award new powers to HMRC for the collection of data from businesses, and secondly, into proposals to digitalise business rates, which will involve linking that data to the wider tax system.

If you have any questions regarding the changes highlighted in this article or would like more specific tax advice, please contact us via partners@rjp.co.uk.