Following the announcement on 22 February 2021, there finally seems to be some light at the end of the tunnel. The government have taken many steps to assist us through this pandemic, but many are asking what consequences this has had on our economy and what could we expect from the Budget announcement on 3 March 2021.
Potential increase in rate of Capital Gains Tax (CGT)
A review of the CGT rules was ordered in June 2020, but is one of the least controversial ideas for the Spring Budget.
Reports suggest that:-
- CGT could be increased to the same as the top rate of income tax which is currently 40%
- There may be a reduction in the CGT allowance and recommendations from the Office of Tax Simplification (OTS) have suggested that these may be between £2,000 to £4,000. The current CGT allowance for individuals is £12,300
- The ‘free’ uplift of CGT on death could be removed
Inheritance Tax (IHT)
In January 2020 the All-Party Parliamentary Group for Inheritance and Intergeneration Fairness (APPG) suggested changes to the IHT rules.
The Nil Rate Band (NRB) has not changed since 2009 and the introduction of the Residence Nil Rate Band (RNRB) in 2017 is only available if certain conditions are met. There are two proposed areas of change:-
- Intergenerational pension asset transfer – under current legislation any unused pension on the death of an individual before the age of 75 stays outside of an individual’s estate for IHT purposes. For those who die after the age of 75 the beneficiary pays the tax on the drawndown income they receive at their marginal income tax rate. The proposed change could see the unused pension amounts included within an individual’s estate, despite their age and therefore would be subject to IHT.
- Seven Year Rule – individuals are allowed to give away £3,000 per annum tax free (other allowances are available) anything over and above would ‘eat into’ an individual’s NRB allowance if the individual dies within seven years of the gift.
It has been suggested that this may be removed and replaced with an annual allowance of £30,000. Anything over and above the annual gift allowance would be subject to tax at 10%. The APPG suggests that the new allowance would replace all other gifting allowances including, but not limited to, the annual exemption and gifts out of excess income.
Income Tax (IT)
Finally there is a possibility that due to the impact of COVID and increased spending there could potentially be a rise in IT, despite the Conservative Party promising in their 2019 manifesto that it would be frozen.
The above information is based on recent news reports and the Budget will be announced on the 3rd March 2021.