November autumn budget the budget and potential planning considerations

The predicted November 2020 budget to be given by Rishi Sunak could be one of the most severe in recent memory.

The aim is simple - start getting the level of national debt down by raising taxes.

The hard part is deciding which taxes to increase. It is still not clear as to what taxes will rise but we can look at some of the options available and look at the advantages and disadvantages of implementing the tax rises.

Planning considerations

For advisors and taxpayers, pinpointing the taxes that will be affected is not so easy. With a large Conservative majority, it might be that the chancellor will look to implement several tax rises now and then reduce them just before the next election.

With some of the options such as an income tax rise, most people would have to grin and bear it.

However, action can be taken on the capital taxes. If you do own assets such as shares, or a property other than your main home and you are thinking of selling or gifting the asset then it might be worth looking at doing this before the next budget. Many commentators are under the firm belief that Capital Gains Tax rises will happen and, even though complex procedure, there is a risk that there could be changes to the Inheritance Tax rules which could expose more taxpayers to the harshness of this particular tax.

If you are looking at selling or gifting some of your assets, then please do get in contact with us to discuss the tax implications.

SUMMARY OF POTENTIAL FORTHCOMING CHANGES

Capital Gains Tax (CGT)

There is a proposal to bring CGT up to income tax level.For example, a residential property disposal by a higher rate taxpayer, would increase the tax rate from 28% to 40% on the gain made on the property disposal. This rise would also hit other asset sales such as shares, whereby a higher rate taxpayer would have an increase of tax rate on the gain from 20% to 40%.

It is widely thought that many people selling their main homes would continue to be allowed to claim exemption from CGT as quite simply, this would be political suicide for the Conservatives if this were to change.

Case for the increase in CGT: It will be an increase in tax revenues from the wealthier of society rather than the poorest.

Case against the change: Raising CGT could stop many landlords selling property which would severely impact first time buyers.

Inheritance Tax (IHT)

Historically, a tax which was only applied to the wealthiest of society and it would have been a guaranteed avenue of attack if the crisis had occurred in past times.

However, this is no longer a tax on just the wealthy. Due to the increase in property prices over the last couple of decades there are more and more people finding themselves exposed to IHT. To expose further taxpayers to the harsh rates of IHT by changing some of the rules could prove troublesome for the Conservative party. But could it happen?

Only last year there were recommendations made to the UK government on how to simplify what is a complex tax. Recommendations include scrapping the 7-year gift rule and replacing it with a lifetime gift allowance as well as changing some of the current relief rules.

Case for changes to IHT: It would give the opportunity for the government to implement the recommended changes made last year and at the same time look to increase the tax take from IHT.

Case against: The tax is so complicated that a lot of work will be required before changes can take place. Do the government have enough time to do this?

Income Tax

One idea is to raise the income tax rates from 20%/40%/45% to 21%/41%/46% which is forecasted to raise £5billion a year.

Case for an increase: to A simple tax rise that could easily be applied. The chancellor could keep the new levels for the next 3 or 4 years and then reduce back to the old level just before the next general election.

Case against: It would produce widespread criticism. Be widely unpopular.

Corporation Tax

Over the last number of years, the rate has dropped from 28% to 19%. It is believed that the chancellor is considering a raise to 24%.

Case for raising the rate: This could earn approximately £12billion in the first year of change. Other low corporation tax economies who are looking to raise taxes may also raise the level of corporation tax so a 24% tax rate may still be competitive.

Case against: Many companies are struggling to survive in the current pandemic and are worried about the future impacts of Brexit. A Corporation tax rise could push many companies under.

National Insurance

The rise of national insurance for the self-employed is a likely option as the chancellor hinted as much back in March 2020 when he announced the grant scheme for the self-employed. The current thinking is there could be a rise of Class 4 National Insurance for the self-employed from 9% to 12%.

Case for the rise: It would bring the self-employed more into line with the employee National Insurance rates.

Case against: A significant number of the working population are self-employed and are working in the gig economy. Tax rises for this group would not be well received.

Pension tax relief

In a lot of cases, taxpayers will receive relief at their marginal tax rate for personal contributions made to a pension fund. However, there are rumours that the chancellor will limit relief to 20% across the board.

Case for change: This measure could save the government £11billion a year and it would be marketed as “levelling up the system” between the well off and the not so well off.

Case against: It would go against the government policy of encouraging the working population to save more for retirement.

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