So how is the UK government going to pay for the billions of Covid related borrowing without breaking manifesto pledges and marginalising traditional Conservative voters? With huge short-term deficits and enormous long-term national debt, something has to give and funds need to be raised.
We have seen the Chancellor increase tax rates on corporate profits (up to 25% from 2023 save for small trading companies) but we are yet to receive clarity on possible changes to personal, particularly capital taxation. Here are some thoughts on possible tax changes for individuals.
Wealth Tax – there appears to be some appetite for a one off Covid fundraiser but the timing on this will be crucial. To get maximum buy-in and minimum pushback payment should coincide with the pandemic feeling of “we are all in this together”; alternatively and contrary to what was proposed in the Wealth Tax Commission’s report such a tax could focus on the super-rich. The problem with that is they tend to be super-mobile – hence the need for anti-forestalling measures. Either way wealth taxes are notoriously difficult to administer whether it is the bureaucracy or the valuations and such a policy is likely to split the Conservative party (again) just when they are getting over their Brexit/leadership wounds.
Capital Gains Tax – the Office for Tax Simplification (“OTS“) has reported twice now and an increase in the rate seems inevitable. President Biden’s recent “First Address to Congress” and tax policy announcements will only help pave the way for action here across the pond. For example, there is talk of reducing allowances and denying rebasing for capital gains tax on death where other inheritance tax reliefs apply such as Business/Agricultural Property Relief or the spouse exemption.
Inheritance Tax – the All Party Parliamentary Report of January 2020 seems like a lifetime away given everything which has happened since then but, coupled with the OTS reports, we see a picture emerging of curtailed reliefs, particularly as regards Business Property Relief where the current threshold of more than 50% trading activity could be increased to match the capital gains tax threshold of more than 80%. Furthermore, the benign seven-year rule for gifts of capital and its associated taper relief are also at risk of being replaced by a flat five-year period.
Solutions to effect now might include lifetime gifts, business restructuring to satisfy the higher threshold, equity release, fragmentation of ownership across family members and/or the use of discretionary trusts or investment vehicles where the older generation can retain control whilst at the same time see value and future growth being held for the benefit of younger and future generations.
There are reasons why significant tax changes might be delayed or avoided, such as where the anticipated post-lockdown boom raises sufficient revenues in itself and UK plc is required to be as competitive as possible in a post-Brexit world. However, changes might take place as early as November so now really is the time to review your affairs and consider taking advantage of the reliefs and allowances currently available before Boris starts to “level up”.