Inheritance Tax and landlords’ rental income are expected to be in the Chancellor’s cross hairs, writes Private Client Partner, Peter Shand in The Scotsman today.  Read the full article below, republished by kind permission of The Scotsman.

Both dates are now set, and the guessing games begin – it is budget season. Chancellor Rachel Reeves will unveil her plans on 26 November with Scotland’s Finance Secretary, Shona Robison, recently announcing she will outline her tax and spending plans for 26/27 on 13 January.

Expert commentators will revel in the usual policy-trailing leaks that will follow and analyse them endlessly on our behalf. Budget time, of course, also means professional advisers are gearing up to address the inevitable raft of queries and worries from clients. And the major concern always revolves around tax.

The dust has not long settled on party conferences, and easy-to-offer largesse from opposition parties has included the Tories’ surprise promise to abolish stamp duty in England and Northern Ireland.

But both governments, UK and Scottish, face challenging budget decisions that are often deeply unpopular. This is not a new phenomenon and nor is the principle of trying to negate so-called tax grabs, albeit some methods of doing so in the past were slightly unusual. In the late 17th century, a controversial window tax was introduced, the amount of which was based on the number of windows a property had.

Homeowners’ tax planning then involved bricking up their windows to avoid tax, an altogether simpler way to pay less than complicated discussions today. These bricked-up windows blocked out daylight and evidence of this still abounds in Edinburgh’s New Town today. It is thought that this then gave rise to the phrase ‘daylight robbery’.

Fast forward to today and speculation is rife that Inheritance Tax (IHT) is in the Chancellor’s cross hairs, specifically around lifetime gifting. The current regime allows any amount or number of assets to be gifted and if the donor survives seven years, these gifts (called potentially exempt transfers, or PETs) no longer form part of IHT calculations. There are now suggestions that the seven-year rule will either be amended upwards or scrapped altogether, or that there will be a limit to lifetime gifts above which tax will be charged.

A key question is why the government is supposedly looking at reforms now. In simple terms, under current rules, HM Revenue and Customs won’t get anything until people die. Changes to gifting rules could unlock a tax grab now especially with baby boomers sitting on stockpiled capital.

Landlords are also in the firing line with mooted changes meaning they might have to pay National Insurance on rental income. Given that the most recent Office for National Statistics (ONS) data shows there are around five million privately rented properties in the UK, this could amount to rich and easy pickings as the government tries to fill a black hole in public finances.

An added consideration for all politicians north of the Border is that we have an election looming in May next year, with announcements and pronouncements carrying extra impact and significance. In such a landscape professional advice to avoid unnecessary impacts from change is crucial.

In The Wealth of Nations, Adam Smith wrote that taxation should follow the four principles of fairness, certainty, convenience and efficiency. I wonder what he would make of today’s complex planning regime. Then again, he wrote that just a few decades after people bricked up their windows to cut tax bills, so perhaps nothing would surprise him.

Murray Beith Murray LLP, Private Client Solicitors

Peter Shand is a Partner with Murray Beith Murray LLP and heads our Asset Protection Group. Murray Beith Murray LLP is a private client practice, made up of specialist lawyers from a variety of legal disciplines, including experts in asset protection and estate planning. If you would like to get in touch to discuss your affairs, then please complete our contact form or call 0131 225 1200.

The firm was established in 1849, as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day as does our commitment to be here when you need us.