2021 UK Budget – Potential Implications

The UK Budget is scheduled to take place on  3 March 2021 and there has been much speculation regarding what tax increases or changes might be put in place to recoup some of the support grants and funds being distributed during the current Covid-19 pandemic.

Boris Johnson personally guaranteed in the 2019 Conservative manifesto that they would not increase the three main taxes – VAT, Income Tax and National Insurance.  The indications are that they will likely stick to this pledge, despite this statement being made before the current pandemic.

Some believe that there will be no significant changes made to any taxes and that the country will be allowed to get back on its feet before any decisions are made to increase taxes.  Others think that there will have to be changes to some other taxes to try to claw back some of the soaring borrowing deficit.

If there are any changes, the three main areas of tax that could be affected are as follows:-

Corporation Tax

A 1% increase in Corporation tax to 20% would potentially yield an additional £3.4bn a year.  Some reports indicate that the Government is considering increasing the rate to 24%, which could result in an additional £17bn being raised.

This potential change has not pleased many business owners and organisations, who are worried that this will not assist businesses to recover and will send the wrong message to foreign companies looking to trade from the UK.

If such a change is made, this would achieve one of the Government’s current aims to try reduce the perceived difference in tax being paid by the self-employed compared to company directors/shareholders who pay themselves via a combination of a personal allowance level salary and dividends.

If this was to happen, then companies may wish to consider delaying any planned material capital expenditure on plant and machinery etc to gain relief at the higher rate corporation tax rate.  If there is a change in rate, it is likely that this would take effect from 1 April 2021.

Tax relief on pension contributions for higher rate taxpayers

Speculation has been rife for the last few years that the Chancellor would abolish tax relief on pension contributions for higher rate taxpayers.  In 2019/2020 this cost the Treasury £21.2bn.

If such a change is made, this would reduce the benefit of making pension contributions for many people. Some people may even stop making contributions, which goes against Government policy of encouraging everyone to plan for their retirement and ensure that they have enough to live on.

If you are thinking of maximising or making further pension contributions for 2020/2021 then you may wish to consider arranging to do this before the Budget on 3 March 2021.

Capital Gains Tax

Capital Gains tax (CGT) currently brings in around £8bn per annum and applies to a smaller circle of people. Some of the discussions being reported are based on aligning the CGT rates with income tax rates.

If you sell a residential property (that is not covered by principal private residence relief) and are due to pay CGT and you are a currently a higher rate taxpayer,  then you will pay CGT on the taxable gain at 28%.  If the CGT rates are aligned with Income tax rates, then the CGT rate would be 40%.

The CGT rate for higher rate taxpayers on other assets is currently 20%.

If you are thinking about selling any assets, then again you may wish to consider trying to do this before the Budget on 3 March 2021.

All of this is of course speculation and we await the detail of the Budget.  This could potentially be one of the most interesting Budgets for a few years or the Chancellor may simply choose to let the country get back on its feet before making any changes, radical or otherwise.

You should of course seek professional advice regarding your own personal circumstances BEFORE taking any action.  Now is a good time to get in touch with our tax team to discuss any tax planning opportunities and requirements.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.