What the Spring 2017 Budget means for family lawyers
Despite the low key build up to last Wednesday’s budget (8 March 2017) amid the political turbulence of Trump and Brexit, there was still plenty for family lawyers to consider as Mr Hammond made his speech. However, many commentators feel that the Chancellor is biding his time until the Budget moves to the Autumn, when the effects of the triggering of Article 50 to commence Britain’s departure from the EU can be better understood.
The increase in Class 4 NICs made headlines because it departed from David Cameron’s Conservative pre-election Manifesto of 2015 not to increase taxes, incorrectly anticipating a ‘Remain’ EU referendum victory. I anticipate that many who are undergoing family change will be affected by this, as greater financial burdens are often the spark for relationship breakdown. If a family business has to be split up or if one of the spouses has to return to work (often the wife who has been the primary carer for the children), they are the ones that are expected to take the risk of building a fledgling business on a self-employed basis. The extra tax burden will add to the risks that do not apply to those employed, and make them less willing to inject money into new businesses.
Reducing the tax free dividend allowance, effective as from April 2018, could be detrimental to entrepreneurs who seek to reduce their tax bill by providing services through a service company. If the main breadwinner, often the husband, is going to suffer a deficit, will the entire family’s finances be disturbed, and therefore make it more difficult to structure a financial settlement following a divorce?
While both the NICs and dividend allowance measures were tabled as promoting fairness in sharing the tax burden, the influential Institute of Financial Studies criticised the dividend allowance changes although backed the NICs increases, despite commenting that the pre-election pledge not to raise taxes was ‘silly’. It remains to be seen whether these changes will pass through Parliament without amendment as the government has only a small majority of 17 MPs.
The self-employed, many of whom are divorced or separated clients, may face a double whammy. In addition to the NICs increases, the tightening up of legislation against tax avoidance schemes was confirmed. Family lawyers and other advisors will need to be careful to check their clients’ true tax exposure when completing disclosure of their financial disclosure.
It is anticipated that future Budgets will look to tax the increasing digital part of the economy. Those clients involved with this lucrative sector will be looking to plan ahead in terms of their investment decisions, albeit in these increasingly uncertain times, which will also impact on the structuring of financial settlements.
Despite the annoyance expressed by much of the media, most commentators agree that the chancellor eschewed any significant changes. For example, the lack of significant change to pension tax relief means that divorcing individuals are still well placed to accumulate capital quickly and make a good recovery post-divorce from the economic shock caused by the separation of marital assets. For some time, there has been discussion about replacing marginal rate tax relief on pensions in favour of a flat rate circa 33 per cent, but that would be appear to be off the agenda for now.
In the absence of a revisit of the generous death benefits that are making Defined Benefit (DB) to Defined Contribution (DC) transfers popular, industry experts anticipate that the treatment of these pension schemes will continue to evolve.
Finally, one may expect that in future both the rates of corporation tax and capital gains tax may change, although the emphasis for now is on tax collection rather than tax relief or tax cuts.
Continued uncertainty about the direction of the British economy will no doubt mean that our clients remain cautious and reticent about change heightened by the impact of separation and divorce. However, the welcome statistical data about growth, coupled with the resilience in property prices means that there remains an opportunity for families to restructure their finances and rehouse.
Given the choppy waters ahead, family lawyers are well advised to keep in touch with tax and financial wealth advisors given the unpredictability that will continue for the foreseeable future caused by speculation and current geo-political uncertainty.
This article was originally published in Family Law here.
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