As 2021 enters the last quarter, it’s hard to tell whether we are leaving a period of uncertainty or entering into a new phase of the last turbulent 18 months. Whilst the coronavirus pandemic no longer seems quite so traumatic (despite still being with us), the business world is now having to deal with the ongoing consequences of Brexit, labour shortages, supply chain malfunctions and a looming energy crisis. To some of a certain vintage this may have echoes of the 1970’s – but without the flared trousers and glam rock.
It is good to know however that some things don’t change and one of these is the Governments need to raise cash. As a result the 2021 Autumn Budget – to be held on Wednesday 27th October – will be the latest attempt by the government to pluck the maximum amount of feathers with the least amount of hissing (to paraphrase Monsieur Jean Baptiste Colbert). Chancellor Rishi Sunak will rise to his feet and deliver his second budget of the year following his April Budget which was delayed from 2020.
We already know that corporation tax rates are going to rise to 25% in April 2023 and that there will be a 1.25% increase in national insurance ( which will eventually become the new Health Levy) and dividend rates from 6th April 2022 to help fund the NHS and the health care sector. However, what else might be in the forthcoming Budget? Here are some possible changes. However, please do note that this is in the realm of speculation as I don’t have a hot line to No 11 Downing Street.
1. Capital Gains tax is still low by comparison to income tax. The current main rate of 20% could be uplifted as it is less than half of the top rate of income tax. Having said that, unlike income, capital gains are comparatively easier to defer and a large increase in the rates could end up yielding less tax as more people would delay making disposals. However watch out for an announcement of increased rates next April to ‘encourage’ capital disposals in advance of that – it’s one way of raising more capital gains tax quickly as folk rush to avoid the increase.
2. Sticking with capital gains tax, the Business Asset disposal Relief, the new name for the former Entrepreneurs’ Relief could be on the chopping block. The relief is worth up to £100,000 to those making gains up to £1m on trading business assets or shares, by applying a 10% rate to such gains. Recent economic reports have called into question the benefit of this relief as it does not of itself appear to encourage re-investment of proceeds. However the Chancellor will be mindful of the potential political backlash of removing this relief as it will hit mainstream tory voters the hardest.
3. There has been little change to inheritance tax over the last few years. It is not a big earner for the Government and once again a Tory Chancellor will be reluctant to ‘stick it’ to his core voters. Mind you some tweaks might be made around the edges that could raise a few pounds without cutting to the bone. A likely contender is the relief known as ‘gifts out of surplus income’, which currently takes out of the inheritance tax net regular gifts made from the income a person generates that is in excess of their normal living expenses. Another outside bet could be a reduction on the rate of business property relief, which for many business assets amounts to 100% of the value of such assets. In other countries, this relief is capped, for example in Ireland the relief is limited to 90%. Such a change would mean a limited but not insignificant amount of tax would be payable on the transfer of business assets following death or a transfer to a trust.
4. There has been considerable talk about a wealth tax coming into play. Whilst there is some support for this type of tax, the practical realities of applying such a levy are very challenging and the view from many commentators is that it is unlikely to raise much, if any, money. Once again it is not something one would expect from a Conservative chancellor.
5. Other possible targets include: an increase in VAT – possible by taxing certain foods at standard rates or putting a higher rate on certain luxury goods; limiting the capital gains relief on the sale of people’s homes to a capped amount; new or increased environmental taxes (especially given the proximity of the COP26 summit in Glasgow); and possibly a removal of the national insurance age limit so that all workers will be liable to national insurance charges no matter what age they are.
As I noted above, the proceeding list is just my thoughts of what could happen and readers should not take any action based solely as a result of these suggestions. However if one was considering selling or gifting a business asset in the foreseeable future, it would be worth seeking professional advice before the 27th October as it may reduce the risk of unwelcome tax changes.
It was noted that when directly asked about further tax increase the Prime Minister avoided a direct answer and came out with the phrase the he was ‘zealously opposed to unnecessary tax increases’. Quite what will be deemed as necessary is something we will get a better idea of on Wednesday 27th October.