Transactions rushed through ahead of the Budget are more likely to be on HMRC’s radar and subject to additional scrutiny, says Stephen Kenny
This Budget has created panic of a magnitude that I haven’t seen for many years.
Widespread talk of closing ‘loopholes’ – despite the fact that most aren’t actual loopholes but previous tax policies – has led to a rush to lock in tax rates or reliefs before they disappear.
If nothing else, it tells us a lot about the public’s view of the seemingly short-term approach to tax policy formulation by successive governments. I would advise taxpayers not to fall into the same trap.
In practical terms, it is now too late to drive through most major transactions – for example, the disposal of a business, property or a significant quantity of shares – before Budget day. Even if a deal can just about be pushed over the line, I would question if there’s really sufficient time to consider the wider commercial effects and ensure that everything is properly structured. This probably explains why we’ve seen people attempting to complete transactions in the past few weeks on terms they would normally dismiss out of hand.
Wait to hear what the Chancellor has to say
With only a week to go to the Budget, my suggestion is clear: I would argue that people would be much better off waiting to hear what the Chancellor announces, rather than attempting to force a transaction over the line now.
Take the example of Inheritance Tax. While there are many rumours about changes to Inheritance Tax, this certainly isn’t an area that anyone should rush into. It’s a long-term tax that’s protected by highly complex anti-avoidance rules. Rushed planning is unlikely to work in the long run – and, in the worst case, could even create a worse tax position or lead to HMRC enquiries.
This last point is worth stressing. Transactions rushed through ahead of 30 October are more likely to be on HMRC’s radar and subject to additional scrutiny. And given the push to complete, how confident would you be that all the i’s have been dotted and every single one of the t’s have been crossed?
The new government has already announced it will invest in HMRC’s compliance work, hiring around 5,000 additional staff to increase the number of investigations, tackle fraud and ensure that tax owed is collected. HMRC has started the process of recruiting additional staff and we expect further announcements on Budget day on tackling the ‘tax gap’ (the difference between amounts owed and the amounts collected).
With more HMRC officers being trained to look at the tax affairs of individuals and businesses, plus the pressure to close the tax gap and maximise revenues, do you really want to take the risk of rushing through a transaction now?
Good tax planning is based on a detailed understanding of both the tax rules and your needs
Finally, consider how you would feel if the changes to rates don’t come into force until April 2025 (or later), rather than on Budget day itself. This is particularly pertinent for complex or large changes to items such as Inheritance Tax. A period of grace could provide a meaningful opportunity to assess the impact of the changes and how they’ll apply to your situation, so that you then have the opportunity to plan effectively for the change.
Good tax planning is based on a detailed understanding of both the tax rules and your needs. I’m now advising clients to consider both their short- and long-term positions and how the tax rules can support these. Rather than rushing through transactions that might be the source of regret, I’d recommend a careful review of the current situation so that you are in a strong position to react promptly to any changes announced next week.
Stephen Kenny, head of private client at audit and accountancy firm PKF Littlejohn