Following Rishi Sunak’s recent Budget, many areas of tax which were rumoured to be impacted were in the end untouched. However, we would urge taxpayers to be wary about how long this situation might last.
As expected, the Chancellor pushed ahead with economic support measures including extending the furlough scheme, business loans, stamp duty holiday and targeted VAT cuts as widely publicised beforehand. Of course, for all these there is a significant cost and the plans to repay this will no doubt be coming down the track.
So, what should we watch out for and what changes might still be heading our way? Here are our key points to consider:
- Under the radar – The Chancellor chose to follow a well-trodden path of ‘stealth’ taxation. Arguably he made some efforts to ‘level with the people’ about the state of public finances. However, other than raising personal taxes and the burden of inheritance tax by freezing allowances and bands, he has yet to make any ’significant’ changes – could this be a matter of timing or will this be for a subsequent Parliament?
- Reform of capital taxes – The Chancellor had the first reports from the Office of Tax Simplification (OTS) about reform of inheritance tax and capital gains tax on his desk when delivering his Budget. While Mr Sunak chose not to act on these matters, it should be noted that a second report from the OTS is due in ‘the Spring’ and this could give Mr Sunak some further impetus to reform the tax treatment of capital transactions.
- How much is flagged for Autumn? Another Budget is currently scheduled for Autumn. By then there will also be another Spending Round due as last November’s Spending Review only covered 2021/22. Add in the promise that there will be a ‘Tax Day’ on 23 March with a raft of consultations issued and it may be that the Spring Budget was just a taster for the main course to be served towards the end of the year.
- Corporation tax – The Chancellor in effect ‘borrowed’ Joe Biden’s plans to raise revenue by increasing corporation tax. Rather than a gradual shift from the current 19% to 23% or 25% as predicted, we now have the prospect of an overnight jump to 25% in April 2023. Increasing corporation tax does not support the mantra that post-Brexit UK is ‘open for business’. This is of course accompanied by the increased capital allowances super-deduction during the intervening two years, giving companies more incentive to invest.
So what could the future hold?
A more cynical commentator might suggest that the threat of capital gains tax increases has led to the acceleration of transactions and disposals, and helped the Treasury coffers, so leaving this area open to ongoing ‘speculation’ is part of the strategy. However, we are expecting further OTS output soon, and we have 23 March ‘Tax Day’ to allow Mr Sunak to report to Parliament on his consultation process and hopefully set out a timetable we can all work towards.
The only certainty we have for now, is that it is effectively impossible for The Chancellor to increase capital gains tax before the November 2021 ‘Budget Update’. More likely there will be some form of extended consultation process leading to changes being formalised as part of a 2022 Spring Budget and to take effect from 6 April next year.
So, for those considering a major M&A transaction or strategy that would trigger a significant capital gains tax or inheritance tax liability, or which would look to utilise an existing exemption, allowance or relief, now might be the time to accelerate these plans. Please get in touch with RG’s Business Tax Partner, Simon Whiteside or RG’s Corporate Finance Partner, Carl Swansbury if you would like to discuss how future changes to Capital Gains Tax should be considered when planning for a major M&A transaction or business sale.