The budget has been announced for 3 March 2021. Due to the effects of Covid and the deficit that has left combined with Brexit this year, we expect this to be a Budget full of changes. While we do not yet know what will be in the Budget yet, there is much speculation and we know there is a deficit that will need to be looked at meaning that tax increases are possible.
The majority of the initial speculation is around capital gains tax (CGT) and inheritance tax (IHT) which we have considered below. To raise serious revenue, it is likely that the Chancellor will need to look to income tax, VAT or national insurance we will be keeping a close eye out for any announcements, reports or consultations and keep you updated. In the meantime, let’s look at CGT and IHT and what planning you may wish to consider.
Capital gains tax
The office of tax simplification (OTS) review of CGT contains many different options for changing the CGT rules. All of them would see an increase from the current rates. The most radical increase would be the suggestion of aligning CGT rates with income tax rates which in some cases would see CGT rates more than double from the current rates. Other suggestions would be a change to the very favourable 10% rate of business asset disposal relief (BADR) which replaced entrepreneur’s relief last year.
If you are considering selling or gifting assets or disposing of a business, you may want to ensure these transactions are completed prior to the Budget. This might make now the time to look at succession planning within your business or you may just want to look at triggering a CGT charge on your assets which, for an example, could be done on a transfer to a trust.
This is just speculation at this point so you need to be comfortable with your decisions but for those considering sales and gifts just now, some food for thought on the timing.
As well as proposed changes to CGT, there has also been talk about IHT or even a wealth tax. A cross-party report was issued in January 2020 proposing radical changes to IHT, including a suggested reduction in the current 40% rate to 10%. This is to be balanced by abolishing most reliefs, including business relief, agricultural property relief and potentially exempt transfers (PETS). PETS are when assets can be gifted and there is no IHT due if the donor survives for seven years from the date of the gift.
When looking at the proposals, on the face of it a reduction in the rate of IHT would seem like a tax saving, in reality, with the removal of the reliefs many would pay more IHT in future not less.
IHT and CGT planning often go hand in hand so if you are thinking about these and your long term tax planning, come and talk to our tax team at MHA Henderson Loggie.