Budget predictions – Spring 2021
Like Christmas, Easter eggs in shops and COVID lockdowns, Budget prediction articles seem to get earlier each year.
What do we expect in the Chancellor’s Budget on 3 March?
The honest answer is nobody knows. It’s 50:50 whether we will have a Budget in the Spring given where we may be with COVID at that time.
However, we wanted to present you with our thoughts, so here are some potential scenarios.
Rebalancing the economy
As a nation we have invested/spent eye-watering amounts in fighting COVID, and the consequences of it. Some would say that this borrowing needs to be repaid; there are few options available in cutting government spending after the austerity years, and current needs, so taxes must rise.
What might this look like:
- Alignment of income and capital gains tax rates (so CGT charged at marginal rates), with possible relief for inflation only gains;
- Restriction of pension tax reliefs; contributions given flat rate relief (possibly higher than basic rate to encourage lower earners to contribute); further restriction in lifetime allowance
- Loss of capital gains tax-free uplift on death; currently any person inheriting also inherits base cost of asset (increasing CGT on any subsequent disposal)
- A gradual increase to corporation tax to 22% (still below G20 norms);
- Limiting Annual Investment Allowance to £250,000
- Reducing the period for deemed domicile to apply to being resident for 10 of the previous 15 tax years, rather than the current 15 out of the previous 20
We can’t afford any shocks at all now
The Chancellor may take the view that with the pandemic still creating significant issues across the country, and with businesses still coming to terms with the effects of the Brexit deal, that any changes are likely to be detrimental.
He may therefore decide to do nothing. Now is not the time to rock the boat.
It’s the first post-Brexit Budget
Whilst the Brexit deal limits what we may be able to do (without the EU having recourse to tariffs etc), this is the first Budget where we can make material changes to the VAT code. The Chancellor could take this opportunity to change the tax base.
This could be both positive or negative for the individual and indeed specific businesses. Currently, financial services (including banking) are exempt from VAT. Putting 5% VAT on charges might raise significant sums. However, it could lead to massive claims from large institutions for input VAT.
What the Chancellor should do
The pandemic, and indeed Brexit, gives us an opportunity to take stock and consider the shape of our tax system. The complexity that has built up by sticking plaster over sticking plaster over many years means that we are crying out for simplification of our tax system. Aligning income tax and national insurance contributions, eliminating the distortions created by the employed vs self-employed debate, smoothing out cliff edges as charges are brought in (High Income Child Benefit Charge) or reliefs are withdrawn (personal allowances), simplifying and better targeting things such as the Enterprise Investment Scheme.
The broad skeleton of the UK tax system could be agreed on a cross-party basis thereby creating a framework on which future Governments can hang their own policies.
What will the Chancellor do?
We have no idea; but it won’t be what he should do.
What should you do?
Given the uncertainty, if you are intending realising capital gains, or making pension contributions, then do consider this pre-Budget. Anti-avoidance measures generally take effect from midnight at the start of Budget Day. Transactions, therefore, need to be completed on March 2nd.
In any case, do speak to your contact at Kreston Reeves to discuss your plans.
What Kreston Reeves will be doing?
If the Budget goes ahead as planned, we will be hosting a ‘Budget question time’ webinar on Friday 5 March 2021 where our panel of tax, financial planning, legal and funding experts will be on hand to answer your Budget related questions. We will highlight the key implications for businesses, their shareholders, directors, and for personal wealth, and provide insight and guidance for the next steps you will need to take. More details including how to register your place is available here.
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