April Budget warning
The UK government stepped in to provide unprecedented support packages for businesses and workers as a result of the COVID-19 global pandemic with Chancellor Rishi Sunak confirming on the eve of ‘Lockdown 2.0’ that the furlough scheme will extend right through to March. The economic shock and discretionary measures taken by the Treasury will put the public finances under the most extraordinary pressure over the coming years.
What could be affected?
- Alignment of Capital Gains Tax to income tax rates: In recent times, items chargeable to capital rather than income have been at lower rates than income. Non property gains could go from 20 to 40/45% for higher and additional rate payers.
- Removal of higher and additional rate pension tax relief: On personal contributions the Treasury pays out around £50bn a year in pensions tax relief, with much of it going to higher rate payers. Restriction of relief to basic rate would be a big hit to millions of employees.
- Corporation Tax increase: Increase the tax on company profits from the current 19%. Competitive Corporation Tax rates can make the UK a more appealing base for companies over rival countries and generate innovation.
- Further curtailment/abolishment of Entrepreneurs Relief: A well-trodden path for SME owners already down from £10m to £1m and apparently being considered for further cut back.
- Inheritance Tax reform: The Treasury instructed the Office of Tax Simplification to look at a wide array of measures, many of which would restrict currently widely used estate planning methods. This could include the reform of Trust taxes/use.
- Private pension income withdrawal rates: A director of the Institute of Fiscal Studies, Paul Johnson told a Treasury Select committee that generation had done very well out of tax reliefs and occupational pension schemes when they were more generous and recent tax raids on accumulation have left them unscathed. He suggested an increase was entirely feasible, perhaps even diverging slightly higher than general income tax rates.
When could these changes take place?
Most tax changes tend to be implemented from the following April of the new tax year and there is clearly sensitivity within the government about stifling a fragile economic recovery from COVID-19. However, some changes could actually lead to higher costs in the short term, so may be implemented immediately (pension tax relief for example).
What can I do now?
- Capital Gains: Consider realising gains prior to the budget
- Pension/ISA top ups: Consider using your carry forward and allowances where feasible prior to the budget
- Corporation Tax relief: Strongly consider whether you could/should be making employer pension contributions from your company as these are relievable business expenses. Talk through your accounts with Carpenter Box Accountants to ensure they are optimised. Look also at capital allowances and R&D.
- Inheritance Tax reform: If your exposure is concerning, it may not be too late to act. We work in tandem with gifted tax advisers, get in touch to understand your options.
If you would like any further advice, please get in touch with a member of our team on 01903 534587.
The value of your investments can go down as well as up, so you could get back less than you invested.