Insights

Rishi Sunak will be delivering his spring budget on 3 March 2021, and likely tax announcements are becoming hotly anticipated.

As reported in the Financial Times in January, the government is continuing with its election manifesto pledge not to increase the rates of income tax, national insurance or VAT.

So will the chancellor seek to otherwise increase tax revenues for the government at this unsteady economic time? And if so, how?

There have been suggestions that corporation tax and capital gains tax will be targeted to help recoup the £82 billion invested into the furlough scheme to date. Whatever announcements are made, the government will clearly be treading very carefully to minimise any further damage to the economy; GDP is expected to fall by around 4% in Q1 of 2021 and the Bank of England has given lenders 6 months to prepare for the introduction of negative interest rates.

Here’s what we think could be in the spring 2021 budget.

Corporation tax

Many limited company directors have already suffered during the past year because they could not claim sufficiently through the furlough scheme if they were receiving income in the form of dividends. Now they may be hit with more bad news – a possible increase in corporation tax rates. Currently at 19% for all company sizes, every 1% rate increase will generate an extra £3.4bn for the Treasury. An increase to 22% for example could recoup over 10% of the furlough costs. Whether this takes place in one increase or gradually will be a decision for the chancellor.

Revised property tax

We currently have a highly publicised stamp duty holiday which is due to end on 31 March 2021, creating additional costs for those who are in the midst of a property purchase. The chancellor may take pity on those buyers by giving them a small extension.

There is speculation that on an ongoing basis stamp duty could be replaced with a new property tax, perhaps based on the value of a property, as an ongoing levy. Whilst this might be an attractive tax-take, it puts taxpayers in the position of having to pay tax when no sale proceeds are available, creating a ‘dry’ tax charge, and for this reason would be very unpopular and difficult to collect.

Capital gains tax

The Office for Tax Simplification (OTS) has already published a report which suggests bringing the capital gains tax regime into line with income tax to generate more revenues. This would clearly have implications on both business and property sales but would be a major overhaul at what is a very busy time for the government, so maybe in the interim we will see a modest increase to the rates of capital gains tax with more radical changes to follow.

These speculations are currently just that and we will have to wait until the budget to learn exactly what Rishi Sunak intends for UK taxpayers. Should we hear about other potential tax changes between now and then, we will update you.

If you need help with any tax planning between now and the year end on 5 April 2021 please contact us at partners@rjp.co.uk.