As the first days of lockdown turned into weeks, and weeks turned into months, the government rolled out various schemes designed to assist people and business who had been impacted by the Covid-19 pandemic.
Now that the end of summer is in sight, the thoughts of journalists, commentators and tax professionals are turning towards the Chancellor’s autumn budget and what that might include.
This conversation is happening against the backdrop of data showing a shrinking economy and levels of government deficit (and overall debt) which have never been seen in peacetime.
Inevitably, and understandably, that has led many people’s thoughts to turn to how the deficit can be narrowed, and how the national debt can be brought under control. Due to the ongoing cost of Covid-19 assistance, and the fact that the virus doesn’t seem to be going anywhere any time soon, it would appear logical to conclude that at least some additional funds will need to come from increases in tax revenue.
Any thoughts on the likely changes are of course just pure speculation, but that doesn’t mean there is no point in thinking about them.
Income Tax, National Insurance and VAT increases would all reduce spending power at a time when the focus of the Government is on “kickstarting” the economy, so although possible, an increase in any of those seems unlikely. As we have seen with the limited scope reduction in VAT currently in effect, a decrease in VAT is possibly a more likely occurrence.
Stamp duty land tax has already been temporarily cut for certain transactions, so this seems an unlikely candidate for further changes in the autumn.
There was widespread speculation in the run up to the spring statement, that major changes to Inheritance Tax (IHT) would be announced, following publication of the All Parties Parliamentary Group report on IHT in January. As it happened, this speculation was wide of the mark, but there is always the possibility of an announcement this time round.
This leaves us with Capital Gains Tax (CGT) which is an area where the government seems to be coming under increasing pressure. In part this is because of public perception (rightly or wrongly) that only wealthy people pay CGT and as a result the rates (10/20/28%) look unexpectedly low when compared to income tax rates of 20/40/45%, plus National Insurance contributions on some earnings at 12 or 2%.
2020 has already seen one reform of CGT, with Entrepreneur’s Relief (which allows qualifying disposals to be taxed at 10% instead of 20%) being replaced by the clumsily monikered “Business Asset Disposal Relief” (or BAD Relief, for abbreviation purposes). The main change enacted was to reduce an individual’s lifetime allowance for the relief from £10m to £1m, reducing the maximum benefit per tax payer from £1m to £100k.
In this context it would not seem entirely surprising to see rates of CGT increasing, whether targeted at specific assets, as has happened already with residential property, or across the board, or a combination of the two approaches.
What action can you take now?
Obviously we don’t have any insider knowledge on this, but there are certain actions which can be taken if you are worried about potential increases in CGT.
- If you are planning on liquidating a company, based on experience gained in March this year, it would be well worth starting the process before the budget.
- If you are planning a gift of an asset to a connected person, and you know the gift will trigger a CGT liability, it may be cheaper to do so before the budget rather than after.
- If you have an asset you are looking to sell, again you may want to complete this before the budget.
- Certain options are available if there is not enough time to push through a sale, but all of those can leave you with a “dry” tax bill if the sale does not go through – once the CGT has been triggered it cannot be undone.
The above are only suggestions of areas to think about, if you are worried that possible tax changes could detrimentally impact you.
Any actions such as disposing of assets should not be undertaken solely for tax purposes. The above is not intended to be advice. Please contact your usual RG contact, or business tax partner Simon Whiteside if you have anything you would like to discuss from a tax planning perspective.