Earlier this month, the UK election resulted in a hung parliament where no major political party secured enough seats to form a majority government.
Current prime minister Theresa May had hoped to win the backing of Northern Ireland’s Democratic Unionists Party (DUP) in order to stay in power with a minority Conservative government.
However, on Tuesday, deputy prime minister Damian Green cast doubts on the government’s ability to secure a ‘confidence and supply’ with the DUP, raising the possibility of another general election later this year.
IHT and CGT
Speaking at the International Adviser Portfolio Bond and Tax Planning Forum in Birmingham on Tuesday, John Cornelius, a tax and financial consultant at UK-based IFA firm Warwick Butchart, said whichever party forms a new government the UK electorate’s support for left-wing policies could lay waste to IHT exemptions and CGT.
“IHT has quite a lot of exemptions available at the moment which we could lose. CGT is one of the most attractive taxes we have so this could be targeted,” he said.
High pension tax relief
Also speaking at the event, Rick Eling, head of proposition at Old Mutual Client Advisers, said he wouldn’t be “surprised if the next government is either a Labour majority or a left leaning coalition”, which is likely to target higher rate tax relief on pensions.
“I don’t think this government will last very long, I’ll be extremely surprised if it sees out its full five year term,” he said.
Ian Smith, director of UK-based IFA firm Central Wealth Planning, agrees, adding that the existing chancellor may slash the relief in order to raise cash to fund an end to the Conservative’s austerity measures.
“Many people believe there won’t be any change to higher rate tax relief because that would require majority support in parliament. Is Corbyn going to vote against cutting higher rate tax relief? I don’t think so.
“If the chancellor wanted to cut it to raise some cash, they might do that now. Given the drift left in UK politics, the Conservatives may need to jump on that bandwagon a bit,” he told an audience of financial advisers.
AIM exemptions
Eling also said a new government may move to abolish business property relief on certain shares traded on the Alternative Investment Market (AIM), which in some cases provide 100% exemption from IHT.
“The AIM exemption for inheritance tax will also come under scrutiny which is very much a loophole.
“Business tax relief was intended for family-owned companies but AIM is such a developed stock exchange in its own right. I would use it [the exemption] sooner rather than later as I wouldn’t be surprised if it closes too,” he said.
Queen’s Speech
The comments come as the Queen delivered her speech in parliament on Wednesday, setting out the government’s legislative programme for the next two years.
