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The Chancellor’s next Budget is due to be published earlier than normal this year, on Wednesday 3 March 2021. 

Although no significant details have been published in advance of the Budget, there has been widespread media and industry speculation that the Budget will include some measures to recoup, to some extent at least, the cost to the Treasury of supporting the UK economy during the last 10 turbulent months. 

Particular attention has been given to the reform of Capital Gains Tax and some aspects of Inheritance Tax, particularly in light of work being done in both of these areas by Government and by bodies such as the Office of Tax Simplification and the Wealth Tax Commission. 

With estimates of Government borrowing during the pandemic ranging between £263bn and £391bn, it is almost inevitable that some reform is on the horizon and clients are encouraged to review their financial and succession planning with their legal, financial and tax advisers now, to take advantage of opportunities presently available and before any changes come into place.

Potential Changes

The Office of Tax Simplification published a report in November 2020 which included proposals for the reform of some aspects of Capital Gains Tax.  The key proposals were:-

  • To raise the rates of Tax- by aligning the rates of Capital Gains Tax more closely with those of income tax, the rates of tax could rise from 10% and 20% (18% and 28% for residential property transactions excluding the main home) to 20%, 40% and 45% for higher rate taxpayers;
  • To reduce annual allowances- more tax could be collected by reducing the annual Capital Gains Tax- free amount from £12,300 at present to between £2000 - £4000;
  • To reform Capital Gains Tax relief on inherited assets. At present, where an asset is inherited, tax is only generally payable where the asset is later sold or gifted on by the heir at a value higher than the value at the date of death. The proposal now is to tax the gain with reference to the value when the asset was originally acquired, not at the date of death value.   In the case of a family farm purchased many years ago, the difference in value between now and then could be very large indeed, with an even higher tax bill should the rates of tax be increased.

Proposed Wealth Tax

Much has also been written in recent times about a potential Wealth Tax in the UK.  While considering an annual Wealth Tax to be impractical, the Wealth Tax Commission indicated in their report in December 2020 that a one-off wealth tax would be an effective way to raise significant funds in a short space of time.  Among the more worrying proposals was a suggestion to include pensions within the scope of the tax, as well as assets normally qualifying for Business and Agricultural Property Relief from Inheritance Tax such as trading businesses and working farms.  The proposal was to capture any individual assets with a value greater than £3,000. 

In view of the continuing need to combat the effects of Covid-19 and to support business and jobs, industry opinion sees even a one-off Wealth Tax as one of the more remote possibilities for the UK and significant reform of Capital Gains Tax and Inheritance Tax as a medium rather than a shorter term project.  That said, given the reliefs which are in place now, all clients are encouraged to review their finances and their succession planning while opportunity permits.  Many may simply take the chance to speed up the pace of existing plans.

If you would like to discuss your own succession planning, please get in touch with the our Private Client Team who will be happy to help.

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