13.1.2021 | TaxCould March’s budget see a rise in taxes to cover the cost of Covid?
Andrew Diver, head of taxation at Beatons Group, explores what could be included in the next budget.
Throughout the coronavirus pandemic, the UK Government has looked to help businesses and the wider public weather the storm financially.
The furlough schemes’ introduction allowed firms to reduce their staff costs and remain afloat, while grants and loans have been offered to companies hit hard by COVID-19 restrictions.
But one question that keeps cropping up is how we will pay for all of this in the long run?
We may find out on March 3, when Rishi Sunak makes his next budget announcement, as it is thought the chancellor will be looking at ways to fund the significant cost of the crisis.
Here, Andrew Diver, head of taxation at Beatons Group, explores what could be included in the next budget.
Which taxes could we see rise?
The main area of speculation lies around Capital Gains Tax (CGT).
Mr Sunak previously asked the Office of Tax Simplification (OTS) to review the tax, and they have come back with 11 recommendations.
CGT is a tax on the profit from the disposal (sale or transfer) of an asset that has risen in value.
It is on most personal items worth £6,000 or more, apart from your car and a property which is your main home.
However, you only have to pay CGT on gains above your tax-free allowance, which is £12,300.
It is clear from the OTS recommendations that an increase in capital gains tax is likely; however, what increase we will see and when it will come into effect is more uncertain.
What could change?
There are three potential areas where we could see an increase in CGT – rates, annual exemption, and business relief.
Rates could increase as currently, CGT rates are significantly lower than income tax rates even for residential disposals.
The Treasury may seek to increase rates to be closer to income tax rates.
The annual exemption from capital gains tax is currently £12,300, enabling those with relatively liquid assets, such as shares, to make annual disposals to benefit from increases in value without paying any tax.
However, the OTS has suggested the levels are simply too high if this level is set as a de-minimus to remove smaller transactions.
Business Asset Disposal Relief, more commonly known as Entrepreneurs Relief, can result in a capital gains tax rate of just 10% on the disposal of certain shares or business assets.
One of the OTS recommendations is on how this relief is applied.
For many years, the Treasury has been concerned at the cost of Entrepreneurs Relief as it has cost more than five times its original forecast amount.
Are there any opportunities from a rise in CGT?
This may be the last tax year where the annual exemption is set at the lower level so there could be merits in using this while it is available.
We are also seeing a number of business owners considering voluntary liquidations to wind up their business to realise the value of the business benefitting from the 10% rate.
It may also be a good time to put in an offer into a competitor who might be more amenable to an exit with the threat of higher tax rates on a disposal following the March 3 budget.
I would also recommend businesses get sound financial advice to make the most of any changes to tax rules.
If your business needs financial advice ahead of the budget in March, visit beatons.co.uk