During this coming week, it will be one year since the start of lockdown 1, and I’ll personally be marking the slightly more celebratory anniversary of 20 years as a Sagars team member. To make the most of the reflective mood that I find myself in on account of these milestones, I thought it would be fun (in a tax-geek kind of way ?) to look back over some of the tax changes I’ve encountered during my career and compare them with the tax landscape of today.
Back in 2001 when first I started at Sagars, the United States Justice Department was seeking to break up Microsoft and you could play a snake game on your Nokia phone. I had one young son, one boxer dog and at least an hour commute from Queensbury to Leeds. 20 years on, Microsoft Teams has been a godsend for businesses during the pandemic and there’s not much that our smartphones cannot do. I have two adult sons, two boxer dogs and, despite living just outside Ilkley, a mere two-minute commute that involves just one set of stairs.
Groundhog Day tax measures
Just last week I presented a seminar on the recent Chancellor’s budget and mentioned that some of our existing tax measures had a Groundhog Day element to them…
There were different rates of Corporation Tax in 2001; a starting rate of 10%, small company rate of 20% (which became 19% in 2002) and the main rate of 30%. In 2023 we will revert to having a main rate of 25% and a small company rate of 19%, albeit the main rate will apply to a relatively low level of £250k of profits, compared to £1.5m back in 2001. The concept of “associated companies” which hasn’t applied for a few years is also set to reappear.
In terms of Capital Allowances, the 2001 regime was primarily first-year allowances of 40% or 50%, with some 100% allowances on items such as energy-saving plant and equipment. From 1 April 2021 we will have the more generous Super-deduction for plant and machinery, which is possibly the most generous Capital Allowances regime that I have known in my career, giving a deduction of 130% of the cost of the qualifying item. Even if Super-deduction isn’t applicable, there is still the generous Annual Investment Allowance (AIA) giving tax relief at 100% on up to £1m of qualifying spend.
Moving then to Income Taxes, in 2001 the personal allowance was £4,535, there was a modest 10% band and the basic rate of income tax was 22%, the higher rate of 40% applying to earnings over £28,400, so you paid 40% tax when your total income exceeded £32,935. The current personal allowance is £12,500 and the higher rate threshold is £37,500, so you pay 40% tax when your total income exceeds £50,000.
According to the Bank of England calculator, £10 20 years ago is the equivalent of £17.21 today. Taking this into consideration suggests that the personal allowance has increased relatively significantly over the 20-year period, but the higher rate threshold has not. It’s also interesting to think about this in the context of the five-year “freeze” that will take place from 2021 to 2026 on these bandings, because that will make quite an impact.
Capital Gains Tax
Another interesting area to look at is Capital Gains Tax (CGT) of 2001, compared with the regime of today. Back in 2001, CGT followed income tax rates, so the top rate of CGT then was 40%, compared to 28% now. However, there were also Taper Reliefs available to reduce that headline rate of tax down to a minimum of 10% for business assets and 24% for non-business assets, depending on how long they had been held. Back in 2001 there was also Indexation Relief for essentially the inflation on the cost of the asset which disappeared for individuals in 2008 and was frozen for companies in December 2017.
There was a widespread sigh of relief when the Chancellor didn’t make any changes to CGT in his recent budget but, as I mentioned in my presentation, we are waiting on further announcements next week and future increases to CGT still seem possible given the cost of COVID-19 support.
Back in 2007, the Chancellor of the time decided to announce the end of Taper Relief and the introduction of the Transferable Nil Tate Band for Inheritance Tax (both quite big tax news items) on my birthday, which made for a fun evening for me poring over all the new details!
The last 20 years in tax at Sagars have been fascinating and I’ve worked with some of the very best clients, team members and professional contacts. I’ve supported businesses through from start-up to sale, helping them to navigate their tax challenges along the way, assisted longstanding businesses changing from partnerships to companies, facilitated the passing down of assets through generations, seen children grow up to become involved in their family businesses, and much more besides. I have even been on stage with Hugh Dennis (photographic proof is available from that awards event) and seen the Dalai Lama on a golf buggy at the Harrogate International Business Convention – what more can you want from your career?
20 years is a long time in tax, but I’m looking forward to many more. And, if you know anyone who might like to follow a similar career path to mine, please ask them to get in touch as I’m looking for personal tax and trusts portfolio managers to join my team.