Reading: Spring Budget 2021 predictions

Partner Caroline Casagranda, in law firm Blandy & Blandy’s leading wills, probate, tax and trusts team, looks at whether we might see the introduction of a 'wealth tax' in the Spring Budget, and how capital gains tax, inheritance tax and others may be affected.

There has been speculation that the spring budget, set to be unveiled by chancellor Rishi Sunak in March, may include inheritance tax (IHT) reforms, as well as potential changes to income tax, capital gains tax (CGT) and even the introduction of a new 'wealth tax'. Others have suggested that a new tax on goods sold online or a 'capital values tax', replacing business rates, may be on the agenda.

According to the Office for National Statistics (ONS): 'Public sector net debt excluding public sector banks rose by £276.3 billion in the first seven months of the financial year to reach £2,076.8b at the end of October 2020, or around 100.8% of gross domestic product (GDP).'

Figures published by the Office for Budget Responsibility (OBR) have suggested that borrowing could increase to £372.2b in the financial year ending 2021, slightly higher than the Institute for Fiscal Studies’ forecast of £350b.

Prime minister Boris Johnson has seemingly ruled out a return to austerity measures but Sunak said in November that the UK’s current level of borrowing is “not sustainable”, leading to many predicting that it is a matter of when, not if, significant tax changes are introduced. He could, for example, decide to delay making major changes until the economy has begun to recover, perhaps sometime in 2022. The extent of any reforms and the timing of these will become much clearer on March 3.

Capital gains tax (CGT)

It is possible that changes may be introduced, to bring CGT more in line with Income Tax rates, which analysts say could raise upwards of £14b annually. In summer last year, the chancellor formally requested that the Office of Tax Simplification (OTS) review the CGT regime.

CGT rates currently stand at a historic low, with the basic rate at 10% (18% for residential property) and the higher rate at 20% (28% for residential property). The gap in comparison to the higher (40% on earnings between £50,001 - £150,000) and additional (45% on earnings over £150,000) rates of income tax is obvious.

Inheritance tax (IHT)

According to the OBR, IHT currently raises £5.3b annually, so the impact of any changes to IHT is unlikely to be significant when it comes to tacking the UK’s debt pile. However, that doesn’t mean we won’t see changes announced this spring.

IHT is currently applied to the estate of a person who has died, whereby that estate is valued at over £325,000. The portion of an estate above this level is taxed at 40%. IHT also applies to any gifts made by the deceased in the seven years prior to their death and to lifetime gifts other than to individuals, charities and qualifying political parties.

In the OTS’ first report, titled Overview of the Tax [IHT] and Dealing with Administration, published in November 2018, recommendations included shortening the seven-year qualifying period for gifts to five years (whilst removing the tapered relief currently available), replacing the existing CGT uplift on death with a 'no gain, no loss' approach and IHT relief or exemptions and simplifying the current tax thresholds and exemptions relating to lifetime gifting.

Proposals in the second report, Simplifying the Design of Inheritance Tax, published in July 2019, included introducing a lower flat rate of IHT, but significantly reducing the available reliefs and exemptions. The report also recommended removing the CGT uplift on death.

Income tax and national insurance contributions (NICs)

In its 2019 manifesto, the Government announced a 'triple lock' to freeze income tax, national insurance (NI) and VAT rates until 2024.

However, given that income tax is the single biggest source of tax revenue for the Government, there has been growing speculation that that promise may be undone.

Last year, as the country was in the grips of the first national lockdown, HMRC said that a basic rate income tax rise of just 1% could raise nearly £5b, almost equivalent (as above) to the total amount raised by IHT annually.

Sunak has also increasingly pointed to the support provided to self-employed workers during the past year, through the likes of the Self-Employment Income Support Scheme, when implying that the Government may seek to align the NIC made by those who are self-employed (9%) with those of employees (12%, with an uplift for those earning more than £50,000). NICs represent the second-biggest source of taxation income for the Government.

VAT

This is followed by VAT, in third place, but the likelihood of a further rise (the then chancellor George Osborne announced a VAT increase from 17.5% to 20% in June 2010) seems less likely, with the Government keen to encourage consumer spending and to protect businesses and jobs.

Will we see the introduction of a new 'wealth tax'?

This currently appears less likely to happen than it perhaps did several months ago, after Sunak rejected a proposal from the Wealth Tax Commission in December to levy a tax for those with assets over £500,000, describing it as "un-Conservative".

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