However, it’s important to note these denials frequently refer to “current plans” which of course leaves the door open for a change of direction in the future.

With the next UK election to be held no later than January 2025, what can we expect in terms of personal taxation if the Labour party is elected?

What we won’t be seeing

No plans for a Wealth Tax

Rachel Reeves has made firm statements that there will be no wealth taxes repeatedly asserting that despite the UK being on track to having the highest tax burden since the Second World War she doesn’t believe the way to greater prosperity is through higher taxes which is also a message echoed by Sir Keir Starmer.

No plans to increase income tax or CGT

Even though Sir Keir Starmer pledged to increase the top (45%) rate of income tax in 2010, this proposal has now been shelved.

Previously Labour has opposed the 1.25% increase in dividend rates bought in as a health and social care levy. Will that opposition translate into reversal? Unlikely, if political history is anything to go by.

There has also been speculation regarding the equalisation of CGT and income tax rates following its appearance in the last Labour manifesto. In May, Reeves said she had “no plans” to equalise rates however, this doesn’t rule out rate increases to align the two taxes more closely. Nonetheless, many professional advisers remain nervous that CGT could be an area for potential reform.

No plans to change the pensions lifetime allowance (LTA)

In the Spring Budget, the lifetime allowance for pensions was scrapped with Labour almost immediately announcing that if it came to power it would reinstate the LTA.

Since then, indications have been that Labour has made peace with the scrapped LTA. However, Reeves did identify the £2trn of UK pension savings as a potential source for investment in UK listed businesses, so perhaps we will see some pension reforms under a Labour government.

No reduction in corporation tax rates

Although not strictly a personal taxation point, it does impact the way in which individuals decide to structure their wealth.

The Labour Party Conference 2022 indicated that Labour favours targeted investment allowances over lower corporation tax rates. Politically, making big companies “pay their share” has proved to be a popular message. It therefore seems likely that Labour will hold corporation tax rates at this level.

What can we expect

Limiting APR and BPR reliefs

Reeves announced that Labour will be looking to close tax “loopholes” with one area they are considering is “scrapping” agricultural property relief (APR) and business property relief (BPR).

It seems fairly unlikely that the reliefs would be scrapped in full as wholesale removal of APR and BPR would cause uproar from business owners and farmers and would seriously damage the UK economy.

However, we may expect to see a tightening of APR and BPR so that they only apply to genuine enterprises so that assets held solely for investment-purposes within these classes cannot benefit from these reliefs.

Removing, or limiting, the remittance basis

The remittance basis is an alternative tax treatment that’s available to individuals who are resident but not domiciled in the UK and have foreign income and gains.

Labour has indicated that it would bring in “a modern scheme for people who are genuinely living in the UK for short periods to allow us to continue to attract top international talent”. This may simply involve curtailing the remittance basis so that it is only available for a shorter period of residence.

Alternatively, or additionally, the concept of domicile could be removed altogether as being too subjective.

Charging VAT on school fees

The Institute for Fiscal Studies recently produced a study on the effects of this and concluded that this might result in an additional £1.3bn-£1.5bn of revenue, allowing for an extra 2% increase in state school spending. The likelihood of this policy being enacted by Reeves looks high.

Reversing stamp duty land tax (SDLT) cuts?

In 2022, the nil rate thresholds for SDLT were increased from £125,000 to £250,000. Labour criticised this change saying that it benefited buyers of second homes or buy-to-let property, a reversal may therefore be on the cards.

Tightening up on tax evasion / avoidance and increasing transparency

Labour’s Tax Transparency and Enforcement Programme includes several measures which erode the privacy of wealthy individuals and businesses.

These include policies requiring the public filing of large company tax returns at Companies House and the public filing of tax returns of wealthy individuals earning (a concept which is presumably wider than just salaries) more than £1m.

What’s next?

Currently, Labour’s strategy is to present itself as a moderate on matters of taxation. It remains to be seen whether Labour will indeed hold true to their promise not to increase taxation further given the very difficult economic climate, particularly if we see a second term for Labour in power.

This article was written for International Adviser by Sarah Wray senior associate at Charles Russell Speechlys.

HMRC has issued stop notices to Peak PAYE Ltd and Saxonside Ltd for “promoting disguised renumeration schemes designed to avoid paying national insurance and income tax”, the UK taxman added

It named the two companies as tax avoidance promoters last year but they have since been issued with stop notices requiring them to halt the sale of these schemes. Previously, HMRC could only publish the names of tax avoidance promoters but are now additionally able to publicise the issuing of stop notices.

A stop notice requires a company to immediately cease promoting an avoidance scheme, notify their clients that a stop notice has been issued and make quarterly compliance declarations to HMRC.

Failure to do so can lead to an initial fine of up to £100,000 and unlimited accumulating penalties for other breaches of the notice of up £5,000 per scheme user.

‘Powerful’

Mary Aiston, HMRC’s director of counter avoidance, said: “Stop notices are a powerful way to close down individual schemes and ensure money goes to fund our vital public services. Peak PAYE and Saxonside must stop selling these schemes or face severe penalties.

“Most schemes don’t work and risk taxpayers getting into debt. We’ve already made great strides in tackling promoters of tax avoidance and we’ll continue to act against those who design and sell schemes.

“Anyone who thinks they may be involved in a tax avoidance scheme, or have been approached by a scheme promoter, should contact us as soon as possible to get help.”

Consultation

This comes after UK government launched a consultation on 27 April to introduce a criminal offence for promoters failing to comply with stop notices.

The consultation seeks responses on the scope of the new criminal offence, its potential impact on taxpayers, and the safeguards and protections in place.

The aim is to further strengthen HMRC’s powers to tackle promoters of tax avoidance and drive them out of business.

The consultation closes on 22 June 2023.

The schemes were intended to attract sideways loss relief, so that the investors could write off their film losses against their other income. The marketing involved the issue of an information memorandum (IM) inviting investors to submit applications and subscribe for membership of one or more of three limited liability partnerships (LLPs).

The LLPs were formed as a vehicle to carry on a trade consisting of the acquisition of licences and exploitation of distribution rights to films. The schemes were promoted to potential investors on the principal basis that the investor would be entitled (as a partner of the LLP) to tax relief for trading losses the LLP was anticipated to make that they could set off against their personal income or capital gains to reduce their tax liability.

However, in 2017, HM Revenue & Customs (HMRC) ruled that the partnerships were not really trading and sideways relief was not available.

This caused the investors heavy financial losses. A group of investors sued Thornhill for professional negligence. Thornhill had been retained between 2002 and 2004 by the promoters, Scotts Atlantic Management, to provide advice on whether the schemes were trading commercially with a view to profit. His advice was that they were.

The promoters then showed that advice to potential participants in the schemes. According to the claimants, this implied that Thornhill had assumed a duty of care to them and negligently advised that relief would materialise, making him liable to pay them compensation.

Thornhill defeated the investors’ claims in the High Court in March 2022, but some of them appealed.

Appeal denied

Gerry Brown, trust and estate planning specialist at QB Partners, said: “The Court of Appeal reviewed the earlier High Court decision.

“Did Mr Thornhill owe a duty of care to the investors and if he did was that duty breached by his giving negligent advice?

“The Court of Appeal considered the documentation, which had previously been reviewed by the High Court. The ‘subscription agreement’ required the investors to give the following warranties;

“‘… he or she has only relied on the advice of, or has only consulted with, his or her own professional advisers with regard to the tax, legal, currency and other economic considerations related to subscription to the partnership;

“The subscriber hereby confirms that he or she has read and understood the terms of the IM and has taken appropriate professional advice before submitting this application and is aware of the risks attached to his or her becoming a member in the partnership. …’”

Duty of care

The Court of Appeal also rejected the argument that Thornhill owed a duty of care to potential investors.

It said: “As for Thornhill’s position, he was at all times identified as the seller’s tax adviser in the IM. The fact that he was also described as the LLP’s adviser does not alter that position. Potential investors were being invited to subscribe to membership of a partnership, but they were not yet members of it.

“Investors could not reasonably have thought that he was their adviser in any relevant sense: they did not pay him, meet him or even communicate with him. Moreover, there was nothing in the IM or other documents that suggested he was an independent expert of any kind.

“Significantly, Thornhill’s consent to potential investors receiving copies of his opinions was given in the knowledge that the commercial and regulatory context was as I have summarised. These were unregulated schemes outside the protection of FSMA and investors were therefore required by law to have independent advisers.

“Further, and of central importance, the IM was the only means through which Thornhill’s advice to Scotts could be obtained by third parties, and Thornhill only gave his consent to his tax advice being provided to prospective investors (if asked for) on the terms of the IM and other documents that expressly required those investors to take and rely on their own tax advice relating to the scheme.”

Lessons learned

Brown added: “That was enough to decide the case in Thornhill’s favour. However, the court did go on to consider his analysis of the tax position and concluded, ‘his approach overall was one which, at that time and on this basis, a reasonably competent tax silk could have taken’.

“What can advisers learn from this case? Promoters of tax avoidance schemes will take every step to limit their liabilities should things not pan out as expected.

“Having the client take additional advice will be costly but in the light of this case, necessary.”

In a consultation paper published on 27 April, the government also announced its proposal to expedite the disqualification of directors of companies involved in the promotion of tax avoidance.

Additionally, HM Revenue & Customs (HMRC) reported that as a result of its actions taken to date, the amount of revenue lost to marketed tax avoidance has fallen from an estimated £1.5bn ($1.9bn, €1.7bn) in the tax year 2005-2006, to £400m in the tax year 2020-21.

Since 2016, more than 20 people have been convicted for offences relating to tax evasion or fraud, where the arrangements have been promoted or marketed as tax avoidance.

The government said that while many promoters have now left the avoidance market, it plans “to take persistent action to deter, disrupt and frustrate promoters of tax avoidance”.

‘Determined group of promoters’

The government emphasised that the proposals “do not target legitimate tax advisers and taxpayers.”

Victoria Atkins, financial secretary to the Treasury, said: “They are targeted at a determined group of promoters who profit by attempting to sidestep the rules – often leaving taxpayers with significant tax bills.”

HMRC has published the details of 27 promoters and 31 tax-avoidance schemes, to support taxpayers to make “informed choices” and “steer clear of or exit tax avoidance”.

Since 17 February, 10 promoters have received stop notices, which require them to stop promoting a specified scheme or schemes similar to the specified scheme.

A clear message

Civil penalties that can be charged for failure to comply with a stop notice, range from £5,000 for each failure to provide HMRC with information in a quarterly return, up to £1m for continuing to promote arrangements in the stop notice.

Commenting on its move to further deter people ignoring a stop notice, the UK government said: “The message is a clear one: under these proposals, if a promoter continues to promote a scheme covered by a stop notice, they will be committing a criminal offence and could face prosecution.”

The consultation runs until 22 June 2023 and the outcome will be published later in the year.

The case (James Charles Pride as trustee of the estate of the late Geraldine Jill Pride and HMRC), was heard at a tribunal in December, with the decision published at the end of March.

Gerry Brown, trust and estate planning expert at QB Partners, warned: “Advisers with clients using this type of scheme should take specialist tax advice in the light of the HMRC ‘campaign’ against this type of planning.

“The purpose of the home loan or double trust IHT scheme was to remove the value of a house from an individual’s IHT estate whilst allowing that individual to remain living rent-free in the house for the rest of their life.

“The basic idea is that the individual sells the house to an interest in possession trust of which the individual is the settlor and principal beneficiary. The purchase price is left outstanding as a loan owed by the trustees to the settlor (the home loan). The settlor then gives the benefit of the loan to a second trust for his/her children (the double trust). The settlor cannot benefit from the second trust and the gift of the loan is a potentially exempt transfer (PET). Assuming the settlor survives seven years from the gift it will not be taken into account in determining the IHT liability on the settlor’s death.

“The scheme designers claimed that the outstanding loan could be deducted from the value of the house (which would always remain in the settlor’s estate).

“There were many variations on this basic plan. Various factors including the introduction of stamp duty land tax (SDLT), the introduction of pre-owned asset tax (POAT) and the 2006 changes to the IHT treatment of trusts brought an end to this type of planning. It has been suggested that some 30,000 such arrangements were set up.

“HMRC remains of the view that the schemes do not work as intended and have been challenging schemes on the death of the settlor.”

Decision on the case

Commenting on the case, Brown explained: “Mrs Pride (Mrs P) was the principal beneficiary of an interest in possession (IIP) trust established in 2002. She was entitled to the income arising on the trust fund and additionally the trustees had the power to advance capital for her use and benefit. Because this was an IIP trust, the trust fund was deemed to be in P’s estate for IHT purposes. This trust was known as the property trust.

“Mrs P also established a trust, the children’s trust’, for the benefit of her children. Mrs P was not a beneficiary of this trust. In 2002, she wanted to downsize. She arranged the sale of her house to the property trustees for £800,000 ($1m, €907,000). They immediately sold it to an unconnected party. The trustees thereafter had cash of £800,000 but owed Mrs P the same amount. This cash was invested in an investment bond. Mrs P negotiated the purchase of a flat for £535,000 funded by her but owned by the property trustees. Under the terms of the trust, she was entitled to live in the flat.

“As a consequence of these transactions the trustees had assets of £1,335,000 but owed Mrs P an identical amount. The property trustees had a loan note created, and given to Mrs P, which provided that the note could be redeemed for £5,099,366 − 23 years after issue. (£5,099,336 is £1,335,000 compounded at 6% for 23 years.) The value of the loan note was capped at the value of the trust fund. Mrs P immediately transferred the loan note to the children’s trustees.

“Mrs P moved into sheltered accommodation in 2005 and later moved to a nursing home. She died in October 2016. At that time, the property trust fund was valued at £3,013,942 (the flat was valued at £650,000, the bond at £2,363,942.) This amount fell to be taken into account for the IHT calculation on Mrs P’s death.

“Her executor claimed to deduct the value of the loan note, capped at the value of the trust fund. This meant that no IHT was due in respect of the property trust. There is anti-avoidance legislation which prevents the deduction of liabilities created by the deceased. Were the trustees’ debts created by Mrs P? The executor argued that the liability was a liability of the trustees only.

“The tribunal held that as a matter of law, the property trust assets, subject to any liabilities, are beneficially held by the trust beneficiary, Mrs P. The legislation, properly interpreted, brought the property trust assets and liabilities into Mrs P’s IHT estate. The loan note was derived from her actions. The tribunal pointed out that had Mrs P not transferred the loan note to the children’s trust, her estate would have had equal and offsetting assets and liabilities.

“The value of the loan note could not be deducted in arriving at Mrs P’s IHT liability. The HMRC view (as expressed in its inheritance tax manual) is that the anti-avoidance legislation “is intended to prevent the avoidance of tax through the ‘artificial creation’ of liabilities which would normally be allowable as deductions. Broadly, the rules apply when the deceased has both borrowed money from someone and made a gift to that same person.”

Brown added: “HMRC provides the following example of the type of arrangement the legislation is designed to prevent:

• A gives land valued at £100,000 to B;
• B raises £100,000 by way of mortgage and loans this to A;
• A dies eight years later with the whole £100,000 outstanding; and
• The gift by A escapes tax as a PET made more than seven years before death while the £100,000 debt is claimed as a deduction from A’s estate.

An HMRC spokesperson told International Adviser: “We welcome the tribunal’s confirmation of our longstanding position that properties in these circumstances remain an asset of an estate on death and are subject to inheritance tax.”