The budget presentation on 27 October will be the second budget for 2021.
The Chancellor has already disclosed an increase in NIC and dividend tax to fund the NHS, both increases from April 2022, the so-called Health & Social Care Levy.
And let’s not forget the increase in corporation tax from April 2023. For smaller companies with profits under £50,000 the 19% rate holds, but then rises to a main rate charge of 25% on profits over £250,000.
If, as is expected, the Chancellor continues to plug the message that he needs to repay borrowings, what are the other possible targets for tax increases?
This is a fairly soft option for the Chancellor as the tax only impacts high value estates. The present exemptions are already pegged so will we see an increase in the 40% rate?
Capital gains tax
At present it is possible to convert income into capital gains and pay a lower rate of tax. A simple measure to counter this would be to tax gains as if they were income.
Another possible revenue raising option would be to remove the base cost increase to market value when a person owning an asset subject to CGT, dies.
There has been speculation for some time now that higher rate income tax relief will be withdrawn or reduced to a lower fixed percentage, on qualifying contributions into approved pension schemes.
Freezing tax allowances
If the Chancellor decides to extend the hiatus on increases in tax allowances or the higher rate or additional rate income tax bands for income tax purposes, fiscal drag will mean that revenue from affected taxes will increase. This could create a significant increase in revenues in coming years especially if inflation continues to rise.
Impact on tax planning
We will have to wait and see what the Chancellor presents on the 27th and then reformulate tax planning options based on his announcements.
Landmark is commissioning a Budget Tax Impact Statement that will address these planning options, particularly for the tax year 2022-23. We will be making a copy available from our shop on the 27th.
Alternatively, readers can secure their copy free of charge by taking up our winter offer to trial our Fee Builder service, no charge until 1 February 2022. We will be adding the Budget Impact Statement to our Fee Builder dashboard as soon as is possible after the 27th. It will be provided in a Word format so you can add your own branding or edit our copy. We will also be including an update you can send to your staff and guidance how to make best use of the Statement with clients and prospects.