As the coronavirus pandemic continues, its economic toll on the UK increases too.
The BBC reported back in May that the country’s debt was now worth more than its economy, the first time that had happened in more than 50 years.
The Office for National Statistics (ONS) estimates borrowing for this tax year could total as much as £298 billion, the largest deficit since the Second World War.
Our current economic situation might mirror that of the post-war years, but will the government’s response? Back then, taxes were increased for higher earners in a bid to recoup economic losses without punishing the often-working class people who had been on the front line.
So how might the government go about reducing the deficit now?
This month’s Summer Statement revealed very little. But with an Autumn Budget expected later in the year, here’s what could change in this parliament, and what those changes might mean for you.
Higher-rate taxpayers
Mel Stride, the Conservative Chair of the Commons Treasury committee said recently: “There will be very difficult choices, around spending on the one hand and taxation on the other.”
In the short term, the question of whether the Chancellor would look to curb spending or increase taxation was at least partly answered by his temporary VAT reduction. But what might the longer-term bring?
- Inheritance Tax (IHT)
Inheritance Tax rose sharply after the Second World War, to 80%, peaking at 85% in 1969.
IHT has been on experts’ radars for some time. Many were predicting announcements in the March Budget but changes in the autumn now seem increasingly likely.
IHT changes could involve altering rates payable, reducing thresholds, or reforming reliefs.
Two areas that might be in danger are the ‘seven-year rule’ and intergenerational transfer of pension assets.
Under current rules, gifts are liable for IHT if you die within seven years of making them. The rate begins at 40% on death within three years and then decreases on a sliding scale until year seven.
Whatever changes autumn brings, we can be sure of the allowances and thresholds in place now.
By making use of HMRC exemptions on gifting, or by placing Life Insurance policies in trust, we can help you to manage your estate in a tax-efficient way.
Get in touch if you’d like to discuss how best to manage your potential IHT liability.
- Income Tax
The PAYE system was introduced during World War Two and levied duties ‘as high as 97.5% for those earning the very highest incomes.’
Another increase could be due in the autumn, especially for those paying higher rates.
Making use of annual allowances and reliefs that exist now is the best way to protect yourself against future changes. Whether you want to increase ISA subscriptions, increase the dividends you pay to yourself, or make full use of the Marriage Allowance we can help you.
Pensioners
Pensions will likely be on the Chancellor’s radar too.
- The ‘triple lock’
The Independent reported last month that the ‘Government has ‘no plans’ to break its manifesto pledge and scrap the pension triple lock’ but the Chancellor will be under enormous pressure to find a way to pay what could be a huge pensions bill next year.
The triple lock system means that the UK Basic and New State Pensions rise annually by the highest of either 2.5%, average wage growth, or price growth, as measured by the Consumer Price Index (CPI).
The coronavirus pandemic has led to plunging earnings this year with a rebound forecast for 2021. Average wage growth next year could equate to a sharp pension rise and a huge pensions bill.
A change to the triple lock could have a huge impact on pensioner’s future income.
- Tax relief
The annual cost of pension tax relief to the government is over £21 billion, much of which is claimed by people earning more than £50,000 a year.
The Chancellor might see changes to pension tax relief for higher earners as a good way to recoup some of his coronavirus losses.
If this could affect you, get in touch now. We can help you make the most of the pension allowances and reliefs currently in place and look at contingencies to limit the impact of future changes.
Property holders
The Chancellor used his Summer Statement to announce a temporary holiday on Stamp Duty until next March. The holiday covers the first £500,000 and applies to all property sales in England and Northern Ireland.
The move could give a much-needed boost to the property market, but future changes can’t be ruled out.
Council tax bands might be altered, for example. But the most sweeping changes are likely to be around Capital Gains Tax (CGT).
Rishi Sunak this month ordered a CGT review. The tax currently raises ‘less than £9 billion a year from just 300,000 people.’ By contrast, Income Tax generates almost £200 billion.
Suggestions for amendments include increasing current rates in line with Income Tax, reducing CGT breaks in line with the dividend allowance, or scrapping the £40,000 Lettings Relief.
Although we can’t be sure what changes will be made, the review into CGT makes some alterations all but inevitable.
Whether you’re looking to manage CGT on a disposal of property or concerned about gains on your investments, speak to us and we can help you manage your liability.
Get in touch
The Summer Statement included measures designed to get the economy moving but the UK’s record borrowing will need to be recouped from somewhere.
Whether the autumn brings changes to property, wealth, income, or inheritances, now is a great time to benefit from the reliefs and exemptions currently available and we are here to help you with that.
If you would like to discuss any aspect of your estate, your pensions, or investments, and the impact of any future changes, get in touch. Please email hello@fingerprintfp.co.uk or call 03452 100 100.
