This week, the chancellor delivers his latest Budget.
With lockdown playing havoc with UK employment levels and economic activity, it goes without saying that pandemic support is likely to play a central role in the new budget.
But we can also expect changes to the current tax rules that will impact individuals and their financial plans.
A potential rise in the rate of capital gains tax has already been well publicised.
The first report from the Office for Tax Simplification has been published and includes a recommendation to increase CGT rates to align more closely with those of income tax, on the grounds that the gap between CGT and income tax distorts taxpayers’ behaviour.
This is because many investors actively seek to create gains taxed at a top rate of 20 per cent (except for residential property which is taxed at 28 per cent), compared with income which can be taxed as high as 45 per cent.
However, CGT does not raise much revenue when compared with other taxes – currently, CGT accounts for approximately £9.5bn in tax revenue from fewer than 300,000 taxpayers each year.
Further thought might be given to how any significant rise might affect business owners who are looking to sell.
Until recently, these owners were able to benefit from ‘entrepreneur’s relief’, which provided an effective 10 per cent CGT rate for gains of up to £10m, now replaced by the less generous ‘business asset disposal relief’, which restricts the 10 per cent rate to gains of up to £1m.
Business owners could also be affected by changes to inheritance tax reliefs, namely Business Property Relief and Agricultural Property Relief, the main rationale for which is to prevent the sale or break up of businesses or farms to meet the cost of inheritance tax following the death of the owner.
A 2019 OTS report into IHT made recommendations for the simplification of the rules relating to gifts made during a person’s lifetime.
There are a number of annual IHT exemptions, including the ability to gift surplus income, this being particularly attractive to higher earners.
It is possible that this and other exemptions will be wrapped up into a single annual exemption which may be less generous overall.
The government did make an election pledge against increasing income tax, national insurance or VAT. While this promise was made before the pandemic, it would still be a surprise to see changes in these areas.
Meanwhile, in recent years, a number of measures have been introduced to limit the amount of pension tax relief which can be claimed.
While there have been suggestions of a flat rate of pension tax relief – perhaps at 20 per cent or 25 per cent – this is might be a stretch in the midst of a pandemic.