Budget: Is Now The Right Time To Pay For The Pandemic?

Charles Hague Executive Director, Yorkshire Office, at Julius Baer International, shares his insights on what clients are asking him ahead of the budget.

What will the Chancellor target first?

This is a tricky one – does he start with individuals or businesses? Corporation tax might be an obvious first step with every 1% increase in corporation tax raising around £3.4bn a year. But businesses have been badly hit this year and this tax could have a huge impact – particularly for sectors such as hospitality and retail. Many of our clients are business owners or founders and while their businesses may have shown enormous resilience, this tax might be a step too far for the Chancellor, who will likely want to focus on rebuilding and supporting businesses at this time.

Will there be a wealth tax?

Although not typical for a Conservative government, one option might be to introduce a wealth tax, something that has been feverishly debated for some time. According to the Wealth Tax Commission, a 5% on net assets above £500,000 per individual could raise £260billion. But the complexity of what this means and what is included is huge, and may prove to be too unpopular at a time when the country is coping with considerable upheaval and loss. If whisperings are to be believed, Mr. Sunak has reportedly told supporters that a one-off wealth tax would go against his Conservative Party’s values, but we’ll have to wait and see to see how this plays out.

How might inheritance tax be impacted?

This is an incredibly important point for the majority of our clients – especially today. The pandemic and health crisis has sharpened the focus of many on the topic of legacy and we have had more questions about inheritance tax, wills and power of attorney than ever before, as well as a much broader dialogue across family generations. There is some speculation about whether the existing gift exemptions might be changed which will no doubt have an impact, but to what extent is still unclear.

What about changes to the CGT exemption?

Often one of the first things that we ask our clients is are you utilising your ‘use it or lose it’ CGT exemption. Currently at £12,300, the Office of Tax Simplification has already recommended that the government cut this to between £2,000 and £4,000. They have also suggested that the CGT rate should be more closely alighted with income tax rates, which will likely mean that high earners are the hardest hit. With the budget just around the corner, now might be the time to consider crystallising some gains to benefit most from the existing rate. Talk to your wealth planner or relationship manager now if you have any questions about this and how it might impact your family’s finances, as getting on the front foot will be important.

Will higher and additional rate pension tax relief be reformed?

In 2019/20, pension tax relief cost over £21bn, with most relief provided to higher and additional rate taxpayers. On top of this, over £18bn of relief was provided on employer contributions. This is a tricky area as we know that the pensions gap is a problem as our burgeoning population gets older, but there might be an opportunity for the government to make significant savings if pensions tax relief is cut.

What about property taxation?

This is a complicated area and one where we could see any number of changes. Most likely to be in the spotlight is the current decrease to stamp duty costs and a possible extension to support the property market, as well as a potential look at the council tax regime. We may even see the introduction of one single annual property tax (merging stamp duty and council taxes into one). While there is no obvious solution in the property space, it is an area that will no doubt be being considered.