Amid headlines of the continuing political turbulence caused by Brexit and the Trump administration, there has been comparatively little media attention given to the prospect of any important changes emerging through next week’s Budget. Yet for families undergoing change, this fiscal event could significantly affect asset valuations as well as the structure of financial arrangements, so family lawyers will be wise to keep a close eye on the Chancellor’s speech.
As the political climate of Brexit appears to be steering the UK away from freedom of movement of people, this may well be the time to confirm the abolition of permanent non-domiciled status, which could significantly affect the taxation of international families. The Institute of Directors has called for the Government to match the cuts to corporation tax in the US being implemented by the Trump administration, as well as measures to assist small businesses in town centres, many of which are likely to be run by families.
Lobbying by various industry bodies may result in changes to the tax system. The Institute for Fiscal Studies has observed the emergence of the gig economy and a shift towards individuals working through owner-managed companies. This suggests the alignment of income tax across different forms of business to remove the existing disparity between employment and self-employment. Should such a reform of the tax system take place, family lawyers should be careful to monitor how this may affect business interests pre-dating the marriage when negotiating a pre-nuptial agreement, as well as the vulnerability and protection for spouses, where a family business represents one of main assets in a financial remedies negotiation on divorce.
In terms of immediate taxation changes, confirmation is expected of the start date for penalties for non-compliance in tax reporting of income and capital gains together with measures to counter disguised remuneration, including a possible proposal to transfer PAYE and NICs liabilities to employees. Whether or not such measures will boost the Treasury’s coffers remains to be seen, but those affected will reduce estimates of their wealth. On a more positive note, confirmation of the prevention of excessive tax charges arising on the part surrender and part assignment of life insurance policies would enable individuals to free up assets needed for cash flow in the short or medium term to meet the significant expenses often encountered by families during relationship breakdown.
While commentators are cautious about predicting significant changes arising as a result of next week’s announcements, the experience of the last 12 months suggest that events rather than forecasts will continue to have the biggest impact on the financial confidence and decision making for families undergoing change in these interesting but uncertain times.
Hunters incorporating, May, May & Merrimans