Investors and business owners plus parents and grandparents planning gifts to younger family members could be among those affected by Rishi Sunak’s second Budget on 3 March, Handelsbanken Wealth Management (HWM) is warning investors. But income tax, VAT and National Insurance increases plus any changes to Pension Tax Relief are unlikely to be on the Chancellor of the Exchequer’s agenda, the wealth manager says.
Key areas to look for in the speech in two weeks will include Capital Gains Tax and Inheritance Tax Reliefs such as Business Property Relief (BPR) and Agricultural Property Relief (APR).
Rules on the gifts individuals can make tax-free during their lifetime could be simplified – currently there is an annual £3,000 exemption on gifts as well as the ability to gift surplus income. These could be wrapped up into a single less generous annual exemption.
Make sure you are using your tax allowances
Ross says Handelsbanken always advises customers to ensure that all of their available annual tax allowances are fully used. This includes the personal allowance of £12,500, the dividend allowance of £2,000, and the capital gains tax allowance of £12,300. Changes to Capital Gains Tax (CGT) could mean raising the 20% rate – or 28% on residential property – in line with income tax rates which are as high as 45%. Currently, around 300,000 people a year pay CGT which yields £9.5 billion for the Treasury.
Changes to Inheritance Tax could affect Business Property Relief and Agricultural Property Relief. Currently, when someone dies, there is no CGT on profits they have made from investments, but if that is removed, tax could be payable on the value of their business.
The Government promised in the last election that Income tax, National Insurance and VAT – which account for 60% of all tax revenue – would not be raised and while the pandemic has changed many things it is unlikely to change that promise.
Pensions Tax Relief is often a target for pre-Budget speculation of plans to introduce a flat rate of 20% or 25% and ending higher rate relief of 40% but this is unlikely to happen yet.
Ross added: “Making substantial changes on the grounds of pure speculation is never advisable. But for those who had already planned to make a change, it may be worth considering if alterations to current tax rates would impact the timing of your decision. Of course, we always advise seeking advice on your tax position before making any significant decisions.”