There is a very strong chance that it is going to be a busy year ahead on the taxation front as the Government seek to cover the cost of Covid-19. A Treasury paper was leaked to the National Press in May which reported that there could be the following:
increases to the rates of income tax - or maybe even a change in the personal allowance
increases in VAT (other than the current reduction to support the xyz industry)
increases in national insurance – potentially removing the difference between the employed and self-employed rate
Increases in corporation tax
Increases in capital gains tax – aligning rates with income tax or a flat rate of 28%
Income tax usually accounts for around 50% of tax revenues raised each year so this is likely to be the first place Government will go. But, to put it into context – 1% on income tax would raise c £5bn per year. So, whilst it will contribute to the deficit (expected to be anywhere between £300bn to £500bn) it is not going to be the only answer!
We would expect clients would want to talk through the potential impact of these measures on their personal finances to understand the types of action that could be taken to mitigate the impacts. Here are just a few that you could consider
Start making gifts or increase the size of gifts to children and grandchildren – in effect accelerate some of the estate plans that you already have in mind
Look at Inheritance tax reliefs and start banking them now such as settling assets that quality for business property relief or agricultural property relief
Consider selling assets or investments
Accelerate sources of income by taking dividends or increasing salaries where you are the owner of a business
Consider non-UK tax structures to mitigate the impact of a VAT increase
Consider asset transfers to new trusts
Consideration of increasing the number of salaried partners to mitigate national insurance changes
Consider moving away from Limited Liability Partnerships to Limited Companies
One thing that is clear is that the tax landscape will change and it's better to be on the front foot by talking it through with your personal tax advisor sooner rather than later as the tax year 2020/2021 starts to fly by!