Making the most of taxing times

Both the UK and Scottish governments have taken proactive action during the coronavirus crisis in the form of economic support measures. From a macro-economic perspective, the total cost of these packages will almost certainly be at levels never encountered in our modern history.

Put into context, the UK’S Second World War debts to the US and Canada were only settled in full at the end of 2006, and the country’s historical First World War loan stock was only redeemed at the end of 2014.

No matter the financial outcome, we will be dealing with the economic effects for decades to come.

Chancellor Rishi Sunak’s budget not even two months ago was never designed to deal with these extreme circumstances and the borrowing they entail.

The next UK budget is expected in the autumn. However, it would not be a surprise to see this date brought forward. Unprecedented borrowing will almost certainly require an increase in overall taxation given what the country must now fund, and this has been hinted at by the chancellor.

Professional advisers are often accused of continuously talking about planning for the future, but given the background we are now all facing, planning has never been more essential. Of course, taxation is only one aspect of any planning exercise but there is, in my opinion, a window for action, utilising current legislation, before some planning opportunities may no longer be available.

I strongly recommend using this period of “pause and reflection” to consider the following, among other issues.

Business structure: Corporation tax rates currently remain significantly lower than income tax rates. Would trading as a corporate entity provide more efficient retention of capital? Can you achieve a change of structure without other consequences?

Income tax: Are your remuneration requirements tax efficient? Could you be better served by taking a different mix of income (trading profits v salary v dividends)? If passing on business assets, how will you draw an income in the future?

Capital gains tax: Should you look to gift business assets to your successors sooner rather than later, taking advantage of various CGT deferral elections to do so?

Inheritance tax – Will IHT, and the very attractive 100% reliefs available for agricultural and business property, remain in their current form? Would it be better to enact lifetime gifting sooner rather than later?

Debt structure: Is your mix of bank borrowing efficient? Long-term borrowing rates have never been so attractive. Could any reorganisation of debt be tied into a restructuring proposal?

Pension planning/life assurance: What is your intended use of any pension funds you hold? Are these for retirement funding, “rainy days” or are they now part of your succession planning? What is the purpose behind any life assurance policies you hold? Are your pension funds and life assurance policies written in trust, and for whom?

Wills and powers of attorney: Given current circumstances, it has never been as vital to ensure your wishes are properly recorded, particularly if a restructuring of your business affairs has recently taken place.

The agriculture sector has proven time and again to be tremendously resilient, with innovation at its heart. I remain optimistic it will rise to the challenge again, with a new-found appreciation of its importance to the UK economy.

Iain Gordon is the chairman of EQ Accountants.

“We will be dealing with the economic effects for decades

Picture: PA. An increase in overall taxation has been hinted at by Chancellor Rishi Sunak.