Autumn Budget cancelled - make some smart tax moves
We were expecting Mr Sunak to deliver a Budget announcement in November 2020 that would include significant tax rises to help pay for the support provided during Covid 19. Perhaps it’s no surprise that the Budget has been postponed, but it was rumoured to include a series of tax changes that could have been painful for many. It could now present some opportunities for you to optimise your tax position.
Pension contributions
Just 10 years ago the pension annual allowance was £255,000, however the standard pension allowance in 2020/21 is £40,000, and can be tapered down as low as £4,000 for high earners.
The tax relief available on pension contributions currently depends on your marginal tax rate, so contributions could qualify for relief at 20%, 40% or 45%. Speculation included a possible flat rate of tax relief, perhaps 25%, which would be a significant reduction in the relief available for higher and additional rate taxpayers.
It is currently possible to carry forward any unused pensions allowance from the previous 3 tax years, and make more significant contributions in the current year. If a tax hike is on the way, making additional contributions is worth serious consideration. Unused pension allowances from 2017/18 will be lost if not used by 5 April 2021.
Rate of Capital Gains Tax (CGT)
For higher rate taxpayers, CGT is currently charged at 20% for asset gains, and 28% for residential property gains. It has been rumoured that the rate of CGT could increase to match income tax rates, which was the case prior to 2008. CGT raises a comparatively small amount of tax annually, with receipts predicted to be just £9.1bn for 2019/20, compared with £143.4bn for National Insurance Contributions, and £195.7bn for income tax.
In July, the Chancellor tasked the Office of Tax Simplification to undertake a review of CGT. The call for evidence includes 43 specific questions which have been posed to individuals, business and the tax profession. The deadline for responses is 9 November 2020, so more wide spread changes to CGT reliefs could be on the cards.
As CGT rates are expected to rise over the longer term, then reviewing current assets, and considering a disposal now, could result in significant tax savings.
Corporation Tax
Corporation tax is currently charged at 19% (after the planned reduction to 17% was cancelled), and was rumoured to rise to 24% in the upcoming budget. If the rate increases, this will impact not only businesses, but individuals who have structured their investments through a Personal Investment Company (PIC) or Family Investment Company (FIC).
Depending on the level of increase, and the changes made to other taxes in particular CGT, these wrappers could still be attractive for individuals who want to use a structure which enables tax efficient long term growth and Inheritance Tax planning opportunities.
Plan now
With the budget delayed, it’s unclear when the next round of changes may be, but it’s unlikely taxation will become more bearable, so plan sooner if you want to create greater certainty for yourself and your family.