The Legal Sector has reacted to Chancellor Jeremy Hunt’s Spring Budget rollout for this year, with comments showing very much a mixed bag of opinions.
The lack of change to inheritance tax came as a surprise to many, after the Wills and Probate sector have publicly speculated on potential changes, or even scrapping the tax altogether. Tom Minnikin, partner at Forbes Dawson said that the decision will “disappoint middle-class voters” and say that the Conservatives are more “concerned with bad press” by giving tax cuts to the wealthy during an election year.
Comments from Aaron & Partners earlier this week said that a scrap in inheritance tax would “only have benefited those with capital of over £1M”.
Minnikin commented on inheritance tax, saying:
“The lack of any changes to the inheritance tax regime will come as a disappointment to middle-class voters, many of whom have been dragged into the inheritance tax net as a result of various allowances and thresholds being frozen.
“Rumours circulated prior to the Autumn Statement that Jeremy Hunt was planning to scrap inheritance tax altogether, but no action was taken. Whilst there was less speculation this time round, some had hoped that the Chancellor would increase the nil rate band – the amount which can be left free of inheritance tax – from its current level of £325,000. The threshold has been set at that level since 2009. No increases were announced.
“Today’s Budget may reflect the reality that the Conservative Party – despite having aspirations to reform inheritance tax – are unwilling to be exposed to bad press by giving tax cuts to the wealthier in an election year.”
Minnikin also commented on the lack of change to Stamp Duty:
“Yet again, there was no change in today’s Budget in the rates of Stamp Duty Land Tax, despite calls from various quarters for incentives to help stimulate the property market.
“Foremost amongst the wish list has been a call to reinstate some form of Help-To-Buy scheme for first-time buyers. The lack of any new assistance for those trying to get on to the property latter will come as a disappointment.
“As more and more households come off existing fixed rate mortgages deals onto higher interest rates only time will tell whether the property market proves to be resilient enough to deal with the significant headwinds that lie ahead.
“There was a smaller announcement in the Budget speech that the Government will abolish Multiple Dwellings Relief (‘MDR’) from 1 June 2024, after a review found the policy not to be meeting its original objectives of supporting investment in the private rental sector. MDR applies to transactions that involve two or more residential properties, and allows the purchaser to calculate the stamp duty on the average price. There have been concerns that this has led to avoidance, with some taxpayers claiming relief on spurious grounds, for example by arguing that annexes constitute separate dwellings.
“Whilst in some cases the claims are genuine, the number of cases being found not to qualify has increased significantly. This could be as a direct result of the growth in reclaim companies being set up purely to deal in stamp duty refunds where boundaries have been pushed. Either way, the government has had enough and decided to remove the relief altogether.”
The high income Child Benefit Charge has been commented on, with a focus on the issues facing single parents. Michelle Hogan, Partner at Forbes Dawson, explains how she feels the changes lean in favour of two-parent families.
Hogan said:
“Today’s Budget offers welcome reprieve for some families affected by the High Income Child Benefit Charge (‘HICBC’) but single parents may be disappointed that more substantial reforms designed to tackle perceived unfairness in the rules are to be subject to consultation, according to the Chancellor.
“Under current rules, for every £100 by which an individual’s adjusted net income exceeds £50,000 they lose one per cent of their child benefit entitlement. Consequently, they lose their benefits in full once earnings exceed £60,000. Jeremy Hunt has today increased the lower threshold to £60,000. At the same time he has altered the withdrawal formula to one per cent for every £200 by which the individual’s adjusted net income exceeds the threshold. This means that a person now has to earn more than £80,000 to lose their full child benefit.
“Nonetheless, this still leads to a potentially unfair situation where two parents can earn £60,000 each and face no charge, but a single parent on £80,000 has their benefits cut to zero. With the two-parent family already having a much higher household income this seems wrong.
“Mr Hunt has responded to these criticisms by saying he will consult on switching to a household-based system. However, there will be many left disappointed that he hasn’t taken more decisive action.”
Potential expenditure to the Family Justice System has been “welcomed” by the sector, but Family Law practitioners have suggested the money goes into areas where it is “really needed”- such as an increase in access to the Court system and assisting cases in getting to court more quickly. A “slicker” online portal and a recruitment drive for Judges would aid the Family Law sector by streamlining admin processes and increase in vital professionals so there isn’t a backlog of cases waiting to get to court.
Richard Gilbert, Family Law partner at Spencer West LLP said:
“Any increase of expenditure into the Family Justice System is to be welcomed. However, it needs to be targeted where it is really needed, such as increasing access to the court system and facilitating cases coming to court more quickly than they do at the moment. That means making on the online portal slicker and recruiting more judges and providing more courts so they can sit and hear cases.
“As an experienced collaborative lawyer and newly trained family law mediator, my aim has always been to enable a client to have “a good divorce or separation”. I welcome any increases in expenditure that could potentially lead members of the public to better understand the alternatives to going to court, as such processes are likely to be a less stressful and cheaper than dealing with family differences in the court arena.
“Whilst making this additional money available it must be spent strategically and in that regard, I hope the Government will discuss its options with all interested stakeholders including family lawyers and family mediators.”
“From April 2025, the Government will abolish the current tax regime for non-UK domiciled individuals, or non-doms, and get rid of the outdated concept of domicile in the tax system, replacing this with what they call “a with a modern, simpler, fairer and competitive residence-based regime”.
A Partner at Payne Hicks Beach has called the changes “generous” and that non-doms will have a year to “get their house in order” – however he noted that the upcoming election may have played a part in scrapping the current regime.
The government’s new approach will aims to ensure the country remains “internationally competitive and attract the best international talent”, much like policies for non-doms in Australia. New arrivals to the UK will have 100 per cent UK tax relief on income earned abroad and gains for the first four years that they are tax resident in Britain. There will also be a transitional arrangement in place for current non-doms to adjust to the new policy.
Those who have established ties with the UK and benefit from our public services should contribute accordingly. Therefore, under the new system anyone who has been tax resident in the UK for more than four years will pay UK tax on any foreign income and gains, as is the case for other UK residents.
This reform raises £2.7 billion per year by 2028-29, which is in addition to the current £8.5 billion which non-doms pay in UK tax each year.
Basil Dixon, Partner at Payne Hicks Beach has the following comments to the announcement that the non-dom regime will be scrapped:
“The Chancellor has announced sweeping changes to non-dom taxation but there is no need to panic and the new regime presents attractive opportunities for the well advised client. After a week of intense speculation the Chancellor has put the final nail in the coffin of the tax regime for non-domiciled residents, which has been fading for the last 20 years. He is replacing it with a generous regime for new arrivers to the UK, available for the first 4 years of their residence, where their foreign income and gains will be completely free of UK tax. Unlike similar regimes eg the one in Italy, there will be no charge to access this treatment.
“Resident non-doms will need to consider their arrangements carefully in light of the new rules being introduced.
“Access to the remittance basis and the protected status of their trusts for income and capital gains tax will go from April 2025, but they have been given a year to get their house in order. The excluded property regime for inheritance tax may well continue, albeit in another form, though it should be possible to create excluded property trusts until April 2025.
“To reduce the sting of the loss of the remittance basis, our resident non-domiciled clients who hold foreign income and gains will be able to make use of a helpful Temporary Repatriation Facility, enabling them to bring their untaxed wealth into the UK at the encouraging rate of 12%, though they will need to wait for a year before this becomes available from April 2025.
“All of the above is, of course, subject to the overriding consideration that we are in an election year in the UK, and the incoming government may well have other ideas! Our feeling as a firm, however, is that in the current climate, this is unlikely to happen, whatever complexion the new Government takes.”
However, Mr Minnikin views the matter with a more “cynical” eye and suggests the changes are a political tactic.
He said:
“In announcing changes to the tax regime for non-UK domiciled individuals (non-doms) the Chancellor has stolen one of Labour’s key election pledges.
“Under current rules, non-doms can avoid having to pay tax on their overseas income and gains, provided they do not remit the funds to the UK. A charge of £30,000 applies for those who have been resident in at least 7 of the last 9 tax years, rising to £60,000 for those who have been resident in 12 of the last 14 tax years. Once the individual has been resident for 15 out of the last 20 tax years, they no longer qualify for the remittance basis.
“Jeremy Hunt vowed to abolish the favourable regime in a move that is expected to raise up to £2.7 billion. In its place he will introduce a new residence-based system of taxation. In outline this will mean that non-doms will only benefit from the tax breaks in the first four years of being UK resident. After that point, they will pay tax on the same basis as other taxpayers, although there will be various reliefs available over the next two years to ease the transition.
“Being entirely cynical, this looks like an attempt to undermine the Labour party’s election strategy than any strong affirmation of where the Conservative party stands on the issue of non-dom tax, as Mr Hunt had being saying for months that he no intention to make changes. With the revenue this change raises being put towards other tax cuts announced today, Labour will be forced to rethink their manifesto pledges, some of which were to be funded by abolishing the remittance basis regime.
“Some might call the Chancellor a hypocrite for on the one hand saying Keir Starmer’s party does not have a plan for government, whilst on the other hand stealing their signature policy. They will certainly need a new plan now though.”
