Two thirds are structural reliefs and apply to all people, or companies, such as income tax bands. The other third are non-structural reliefs (or ‘tax expenditures’) and are designed to promote or support certain sectors or specific agendas.
Tax expenditures cost the government a total of £155bn in 2018/19. In the NAO’s report, all tax expenditures were assessed to establish both how much each area costs the government and how effective they appear to be at achieving their intended outcome.
Logically, one could deduce that any tax relief that is identified as being of high cost but producing little positive effect would be the obvious place for HM Treasury to direct further scrutiny.
The reassuring news is that both IHT and BR do not feature particularly prominently.
In the area of IHT policy, the top relief is the current exemption on inter-spousal transfers on death, which itself only comes in at number 20 on the list of top costing reliefs (at £1.9bn), way behind the exemption from CGT on the disposal of a primary residence, for instance, at £26.7bn.
Indeed, in the area of IHT, tax expenditures have actually fallen significantly over the last five years, so are probably of less concern. On this basis, even if we were to have sweeping changes to fiscal policy, the government might be minded not to start in this area.
However, after a year of unprecedented events and with no existing rule book for recovering from a deficit of this scale, no one can predict what the future holds. That is why leaving clients flexibly positioned to deal with any future changes by not making any irreversible decisions, is a maxim worth remembering.
A renewed focus on health and well-being
The arrival of the pandemic brought with it an immediate focus on the nation’s health and mortality.
In the peak of lockdown, demand for will writing increased by 75 per cent, indicating a sense of ‘panic planning’ from those who might not have previously considered later life planning as something that was a priority to them.
There was also an increased focus on the UK’s long-term care system, its strengths and weaknesses and how fundamentally important good care is to quality of life for so many of the population.
We hope that this spotlight will drive continued positive planning behaviour in this area and wealth managers realise they can play a crucial role.
The later life planning services advisers are advocating should encompass clients’ investment needs, their tax-efficiency but also well-being enhancements, such as having access to independent, specialist care advice.
