The date for the forthcoming Autumn Budget has not yet been set, but all signs are pointing towards tax increases being announced by the Chancellor in late October/early November.
No policies have been formally announced yet but there has been significant speculation in the press in recent weeks on a number of tax rises which may impact taxpayers.
The key possible issues are as follows. Please note these are most likely to be relevant to those who are UK tax resident, but may also apply to non-residents in some scenarios.
Capital Gains Tax (CGT)
There has been speculation that the rates of Capital Gains Tax (currently (10% and 20% for most gains and 18% and 28% for residential property and carried interest gains) may be increased to be in line with those of income tax, being 20%, 40% and 45%.
Prior to 2008 the rate of CGT was 40%, the same as the top rate of income tax at the time but there were reliefs for business assets and long-term holdings of assets which reduced the CGT rate down as far as 10%.
Therefore, there is historical precedent to have equal income and capital gains tax rates, but this time around there is not yet any detail on whether there would be reliefs built in.
On what is seemingly a worst case scenario, you could find that come Autumn, your capital gains rates are rising from 10% or 20% to nearer 40% or 45% and so, if you are minded to realise gains in advance of the Budget, you could crystallise a significant tax saving, albeit at the expense of bringing forward tax charges and with the risk that in fact the changes are not brought in as speculated.
If you have assets which you would like to retain but would like to rebase to current market values at the current capital gains tax rate then there may be scope to do this in certain circumstances, we can provide formal advice in this area if appropriate.
Further pension reform
It is widely expected that the Chancellor may make further changes to pension reliefs, despite the significant changes already introduced from 6 April 2020.
It seems likely that there will be further restrictions on the income tax relief for high earners, possibly with a cut of relief from the taxpayer’s marginal income tax rate to just 20%.
Pension changes tend not to be made partway through a tax year due to the complexities of calculating annual pension contribution allowances but it has happened, therefore an urgent change cannot be ruled out in these unprecedented times.
Therefore if you have unused pension savings allowances which you would like to utilise and you have the funds available to make those pension savings this warrants further consideration.
National Insurance Contributions increases for the self-employed
Ever since the introduction of the self-employed business support grants for Covid-19, the Chancellor has been hinting at a NICs rise for the self-employed to match that of employees.
This signals an increase of Class 4 NICS from 9% to 12% on self-employed and partnership profits. Class 4 NICs are charged on the annual profits so again, it would seem most likely that any NICS increase would apply from 6 April 2021 and not be introduced partway through a tax year.
Corporation Tax rises
It is anticipated that Corporation tax will rise from the current 19% to 24%. It seems most likely that this change will be implemented from 1 April 2021.
What Should Taxpayers do In Advance of the Budget?
With all of these changes, as is the case with many Budgets as well as there being uncertainty on the precise rule changes, there is uncertainty regarding the date on which the rule changes could be imposed.
It is common for changes to be announced in the Autumn Budget with a view to bringing them into legislation from the following 6 April.
However, where the Chancellor is seeking to prevent people from planning around the rule change, he may introduce the change as of the date of the Budget.
Selling assets to realise capital gains and making pension contributions deserves further consideration.
Depending on your personal preference, you may wish to act in advance of Budget Day.
You may prefer to wait and see what announcements are made.
Either way, you need to accept the changes may or may not be introduced.
If only we had a crystal ball…
Please do not hesitate to contact us for formal advice on these topics.