Taxing times: What to look out for in next week's Budget

Taxing times: What to look out for in next week's Budget

As the Chancellor looks to settle the mountain of debt on the back of the Covid pandemic there are a number of areas he could tinker with, according to industry commentators.

Chancellor Rishi Sunak will present his plans for the coming legislative period in his Budget speech next week (October 27), and this could include changes to inheritance tax, capital gains tax and a reshape of the stamp duty system.

Sunak is expected to juggle a number of priorities in his Budget, which includes getting the economy up and running, raising money to deal with Covid debts and focusing on environmental issues across the board.

Martin Bamford, head of client education at Informed Choice, said: “The Chancellor has little wriggle-room to cut taxes or boost public spending on this occasion.

"Sunak has to tread carefully, as the pips are already squeaking following the recent NI tax rise, the rising cost of living, and economic uncertainty hitting businesses.”

So what tax changes could be in his sights?

1 Inheritance tax and death benefits

The reform of IHT has been on the table for a while with both the Office of Tax Simplification and an All Party Parliamentary Group suggesting changes should happen. 

Areas of focus for reform have included the rules on lifetime gifts, the exemptions, and the CGT-free uplift on death.

But are changes likely?

Tim Morris, independent financial adviser at Russell & Co said: “We’ve seen the NRB frozen at £325,000 since 2009 and will now stay at that level until 2026 so that’s the same as a tax increase. Especially with property price increases and the RNRB has only partially addressed that issue. So for me, I would prefer no change here.”

Heather Owen, financial planning expert at Quilter, said those hit by the band freezes will likely be hoping for reform but changes were still unlikely. 

She said: “Despite the fact that the public sector borrowing figures give the Chancellor a little more wiggle room, reform remains unlikely.

"While inheritance tax raises relatively little in comparison to the Chancellor’s growing list of spending projects, a change of this magnitude [scrapping it] is highly unlikely as the Treasury needs every penny it can get right now.”

But there is speculation that Sunak may make pensions subject to IHT on death as currently they are exempt, which has been deemed “too generous” by some.

Tom Selby, head of retirement policy at AJ Bell, said: “Pensions can currently be passed on tax-free on death if the person dies before age 75, and at your recipient’s marginal rate of income tax if you die after age 75.

“Applying a tax to inherited pensions would clearly raise much-needed cash for the Treasury, although how much would depend on whether a protection regime was introduced for existing funds or not.

“If it wasn’t, those who have paid into pension on the basis of the death benefits on offer would understandably feel angry at the rug being pulled from under them.”