In the past month we've had various updates from Chancellor Rishi Sunak on tax related issues. We've reviewed the announcements to provide you a breakdown of the key changes you need to be aware of in the coming financial year.
The Spring Budget
The Budget made few changes to tax, indeed much of the tax news was freezing allowances, which is an acknowledged form of 'stealth tax'. The Capital Gains Tax (CGT) Annual Exempt Amount (AEA) was frozen at £12,300, with £6,150 for trusts until 2026. There was, however no commitment to freezing CGT rates.
Inheritance tax (IHT) bands were frozen for a further five years until 2026:
- Nil Rate Band (NRB) frozen at £325K, it will have been frozen for 17 years by 2026
- Residents Nil Rate Band (RNRB) frozen at £175K, and will have been frozen for five years by 2026.
So we keep the combined figures of £500K for one person and £1million for a couple.
Stealth tax increases raise more tax, as shown in the Budget figures which project over a 6 year period from 19/20, a 50% increase in revenue from CGT and a 30% increase in IHT. This means more of our clients will pay more IHT & CGT – so the need for planning to mitigate liabilities is all the greater.
Tax Tables
It's the start of a new tax year, so we've made a downloadable tax table that covers your tax obligations for the year ahead.
Download your copy here.
Tax Day announcements - updates to tax policies and consultations
There was nothing of great substance announced on Tax Day, but a few helpful items of interest to those doing capital tax planning:
Reducing IHT reporting requirements on estates
The Treasury said inheritance tax reporting requirements will be “simplified later this year”, to change the regulations from 1 Jan 2022. While we welcome any simplification, that only leaves nine months – and it’s quite a process to pledge “over 90% of non-taxpaying estates” will not have to do an inheritance tax account.
The Office for Tax Simplification (OTS) said in their first IHT report in November 2018 that approximately 50% of estates need to do an inheritance tax account of some form, even though less than 5% of estates pay any IHT – so reducing that figure to around 15% of estates doing accounts suggests some big changes are ahead, but what those look like remains to be seen. Whatever happens, the Treasury has a big task ahead and promoting the change should be a priority – as the nine months will fly by.
The process for submitting IHT forms without physical signatures of executors, brought in as special arrangement for COVID-19, is to be made permanent – which is a sensible step, as it has worked so well over the pandemic.
Response to the first OTS report
The HM Treasury responded to the first OTS Report on IHT, which was published in November 2018. This include the response to IHT above, which is a significant part of “improving the customer journey” with IHT on which the first report focussed. The OTS recommendation of a fully integrated digital system for IHT is accepted as a good longer term objective but it is set by the Treasury “against other short and long-term priorities for the digital transformation of taxes” –i.e. join the long queue!
The Taxation of Trusts review
The review concluded that there will be no change for now, as “the responses did not indicate a desire for a comprehensive reform of trust tax at this stage. The government will keep the issues raised under review.” So while it is good that there is no major change, there are some difficult technical points - in particular re trusts for disabled persons or self-settlement trusts by those with concerns about their future health - that also will not now be addressed.
Compliance and making tax digital
The main document issued on 23 March has a chapter on “Tackling non-compliance”, continuing the government’s longer term project, including “clamping down on the promoters of tax avoidance”. There is also a lot on the investment in digital infrastructure, and the extension of “Making Tax Digital” to Income Tax Self Assessment from April 2023, which is a big step.
Tax planning: looking ahead?
I am personally relieved that our new IHT Planning Handbook, which I co-edited and wrote with 14 colleagues for the Law Society, has not become out of date, with no changes to the substance of IHT! The possibility of changes to IHT and CGT is, however, in practice really only postponed. It is quite likely that a future Budget, in Autumn 2021 or Spring 2022, would make some substantive changes, to help pay for the emergency measures. So, in the meantime, make the most of the current regime – as good as it will get!
Inheritance tax quarterly update webinar
In our next Inheritance Tax (IHT) update on 5 May we'll be providing you with our latest thinking on IHT planning following the Budget and Tax Day announcements.
We'll reflect on the key issues for advisers to raise with clients, seeking to mitigate their long term IHT liabilities as part of the estate planning, including those where change may come in the next Budget, and you'll have the chance to submit questions for our experts during a live Q&A session. Register your interest for the event now.
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March 2021
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