Chancellor Rishi Sunak will set out plans to boost the UK economy in his Budget next month. This could mean tax rises as the government looks to balance the books after borrowing a record £284.7 billion following the coronavirus crisis. For this Budget, there has been talk of tax changes to repay the UK’s borrowing and boost the coronavirus-hit economy, but there are fears that it could be too early to hit households with increased bills. The Conservative Party had a manifesto commitment, called the “triple tax lock”, that pledged to not raise the rates of income tax, national insurance or value added tax. Mr Sunak is reported to want to keep to this, according to the Financial Times, but any changes – if any – won’t be confirmed until the Budget. Here are some of the tax changes the Chancellor could make and how they could hit your wages and your wallet:

1. Capital gains tax: Currently, everyone has a yearly allowance that lets them sell assets such as shares or a second property with the first £12,300 free of capital gains tax. Mr Sunak asked the Office for Tax Simplification (OTS) to review the current capital gains tax system last year. The OTS released its review in November 2020 and suggested the rate could be doubled from the current 10% for basic rate taxpayers to 20%. For high earners, they suggested doubling the rate from 20% to 40%. The OTS also proposed lowering the tax-free threshold and said the current system “distorts behaviour” as people try to lower their bills. Mr Sunak hasn’t given any indication of changes.
2. Inheritance tax: Currently, an individual can pass on £325,000 of their wealth tax-free to their loved ones. There is also a £175,000 allowance for their main home, giving an individual £500,000 in total. Families have to pay 40% inheritance tax on anything above this. HMRC also provides a gifting allowance of £3,000 that lets you pass down assets such as cash tax-free each year while you are alive. There is also a £1,000 allowance for parents, rising to £2,500, for grandparents, to contribute to a child’s wedding. This means an older relative can see their loved ones enjoy hard-earned money that they would have passed on. But MPs on the all-party parliamentary group for inheritance and intergenerational fairness last year suggested putting a limit on how much can be given away tax-free in someone’s lifetime.
3. Corporation tax: Businesses currently pay corporation tax of 19% on their profits. It is the fourth lowest rate in the Organisation for Economic Co-operation and Development. But Mr Sunak is rumoured to be considering hiking the rate to 24%.
4. Wealth tax: Academics and economists on The Wealth Tax Commission proposed a 5% levy on housing, pension, business, equity and savings wealth in December, and forecasted that it would raise £260 billion. The levy would tax UK residents with assets worth half a million pounds or more – including their homes and pension. Mr Sunak is rumoured to have rejected these suggestions though.
5. Pensions: All pension savers get tax relief on their contributions. The government takes what you would have paid in income tax and puts it in your pension instead. Basic rate taxpayers get a 20% boost and higher earners, those earning more than £50,000, get 40%. Additional rate taxpayers, who earn more than £150,000, can get 45% relief. There are rumours each year that this relief will be scaled back so savers only get the basic rate but there has been no suggestion that Mr Sunak will do this.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of February 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.