UK and International Tax news
March 2021 Budget
Thursday 25th February 2021
With the Chancellor’s forthcoming Budget due to be held next Wednesday 3 March 2021, we comment on a few of the potential areas of tax change given the pressure on the Government to try to bring down the deficit, expected to hit £400bn in 2020/21, and the huge increase in the UK’s debt burden, caused by the pandemic.
The Conservative Government made a triple tax lock commitment not to increase rates of income tax, NIC or VAT in their 2019 election manifesto during this parliament. These are major revenue raisers accounting for 64% of all tax revenue in 2019/20. It is thought that any breaking of this commitment may be too politically unpalatable for the Chancellor or PM. Given this, it is thought more likely that changes might be made to other taxes including capital gains tax, corporation tax and pensions taxation.
We have known for some time that the Chancellor has been looking at increasing capital gains tax rates to align more with income tax rates, as recommended by the OTS. However, whether this would actually increase tax take is debatable as taxpayers may bring forward or defer asset disposal plans. The IFS has also advised that any changes to capital gains tax should only be made as part of a longer term reform of the tax as well as reliefs and exemptions as some of these are thought to be badly targeted or not achieving their original aims.
The current corporation tax rate of 19% is a more likely candidate to be increased given it is one of the lowest rates amongst the G7 and G20 countries. The Budget 2016 commitment to reduce the rate further to 17% from April 2020 was previously reversed and an increase in the rate to say the low or mid 20s would raise revenue and still allow the UK to remain competitive.
The Chancellor is reported to be considering restricting pension contribution tax relief to 20% but, given the complexity of the tax system applying to pensions savings, he may instead defer just changing the tax relief and consult on wider reform of the whole area of pensions provision.
The idea of a one-off wealth tax, rather than an annual wealth tax, which exists in France, Italy Norway, Spain and Switzerland, has been recently covered in the media with some models indicating that such a tax could raise perhaps as much as £300bn. However, it is thought unlikely that the Chancellor will introduce such a tax in next week’s Budget as the effects of imposing a wealth tax would need to be properly considered particularly as many of those potentially caught could be asset rich but cash poor. It is more likely that a consultation process will be announced on this.
Whilst some tax increases are likely, the Chancellor is also likely to announce an extension to the current stamp duty holiday applying to purchases of residential property, and the first £500,000 of consideration, which is due to end on 31 March 2021. This has helped boost property transactions and house price inflation over the past nine months but a sudden withdrawal on 31 March could result in house prices falling in 2021 and damage consumer confidence.
HM Treasury has announced that documents and consultations which are traditionally published on Budget Day will be published on 23 March 2021 instead. HMT has also said that none of the announcements will require legislation in the next Finance Bill or have an impact on the government’s finances.
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