Following this year’s spring budget and a string of consultations published by the Office of Tax Simplification (OTS), Saunderson House hosted a webinar to discuss what the potential changes could mean in terms of tax rises for clients. Associate Director, Olly Cheng (chair), and Head of Technical Research, John Hill were joined by guest speaker and Partner of Page Tax Consulting, Jon Stewart.
In case you missed the webinar, we’ve captured the key highlights for you below. You can also watch the webinar recording here.
Olly kicked off the webinar with a poll question to ask the audience “If taxes were to rise, which tax would you be most worried about?”
The results showed that most people were concerned about a wealth tax (38.9%), followed by an increase in Inheritance Tax (16.7%), then followed by Capital Gains Tax (13.9%). This chimed with a poll that we ran in July 2020; although more people were concerned about a potential wealth tax at that time (55.4%).
The 2021 Budget
John talked us through the changes in the March budget. He highlighted that “on the whole taxes are going up… the budget in March was one of the biggest tax increases of the last 40 years, second only to 1992…[resulting in a tax] increase of over 1% of gross domestic product”. The three most notable short-terms changes to taxation included in the budget were: an extension to the stamp duty holiday, personal tax rises by stealth, and an increase to corporation tax.
On personal taxation, John spoke about how the government are increasing taxes under the radar using what is referred to as ‘fiscal drag’ – allowances and exemptions are frozen over time, eroding the value of them so that taxpayers end up paying more tax in real terms adjusted for inflation. Freezes are being applied to allowances and exemptions for income tax, Capital Gains Tax (CGT), Inheritance Tax (IHT), pensions and ISAs for the next five straight tax years.
Jon Stewart followed next by talking about the two OTS reports on CGT and IHT. The main proposals being put forward relating to CGT are: more closely aligning the rates of income tax and CGT; having fewer CGT rates; reducing CGT exemptions; addressing the double jeopardy of CGT and IHT, and the opposite; and reforming Entrepreneur’s Relief to focus more on retirement.
Jon highlighted that many clients are looking to anticipate when CGT will increase – Jon’s advice at the moment is to “sit back and don’t panic… consider the tax implications of taking action now and speak to your wealth adviser about the investment decisions and your assets.”
Moving onto the OTS’s report on IHT, 11 changes were recommended, the key ones being: a single gift allowance; 5-year clock (with no taper relief) instead of a 7-year clock (with taper relief); abolishment of the 14-year rule; addressing the double jeopardy of the CGT and IHT (again); and term life insurance always being exempt even if not in a trust.
The OTS did not make any substantive comments on the Residence Nil Rate Band or trusts but raised an eyebrow regarding Business Relief on AIM shares.
Jon concluded the section on IHT by highlighting two points to Saunderson House clients:
In our final section, John talked about wealth taxes – an area that has been widely discussed recently in the media. John highlighted that although many people are worried about a potential wealth tax, there are a number of reasons why it remains unlikely: (1) wealth in the UK is mainly in people’s residences and pensions; (2) wealth can be hard to value and often illiquid, such as in properties, defined benefit pensions and unlisted shares; (3) liquid wealth could leave the country; (4) no wealth tax infrastructure in place; (5) internationally wealth taxes have generally failed.
John finished by talking about the existing wealth taxes in the UK, including CGT, IHT and stamp duties (see the red pieces of the pie on the left-hand chart), and looked at the narratives that those with higher incomes do not pay their fair share, that wealth taxes could realistically raise significant amounts of tax, and that significant further tax rises are needed to balance the books.
Olly concluded by saying that wealth taxes are highly unlikely given the key points discussed throughout this webinar. The main points for individuals to look at from a personal standpoint are:
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Hopefully this webinar and accompanying summary have been useful. If you have any questions at all or need help with your financial planning, please don’t hesitate to get in touch.
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