Financial planning firm Paradigm Norton has published a client-facing white paper, The Cost of Covid, an in-depth look at the country’s coronavirus-induced debt liabilities and what steps the government might take to balance the books in the next Budget.
Co-authored by the firm’s senior tax manager James Mohide and head of Technical, Dan Atkinson, the latest white paper from the firm is aimed at clients and professional introducers. The pair also produced a short video to accompany the paper, highlighting the key points.
The paper highlights in plain English the effect of the Covid-19 crisis on government spending and revenue, how this has impacted borrowing, and the options open to government to pay down the debt accrued during lockdown.
Two extreme options the writers rule out are encouraging inflation to reduce debt and defaulting on that debt, pointing out inflation cannot be directly controlled and default is an extreme measure with long term consequences.
Also unlikely are spending less, with most government departmental ‘fat’ having been trimmed already, and borrowing more. This, the writers point out, leaves the government with one option, earning more, which means increasing tax revenues.
Speculation is already rife in the media around the potential for the Chancellor of the Exchequer to introduce significant tax increases in the upcoming Budget. Whilst seeing tax increases of some kind as “the most viable and effective solution”, the writers believe “tinkering with the existing structures” will be the most likely course of action rather than major tax reform.
The paper looks at the primary forms of tax affecting financial planning clients and assesses which are most likely to be used to help redress the country’s deficit.
Ruling out increases in income tax and a time of growing unemployment and corporation tax when businesses need to be leading the economic recovery, the writers conclude that the area spotlighted is Capital Gains Tax (CGT).
Assessing the tax planning opportunities within CGT, the writers suggest three areas where the Chancellor could make changes and bring in significant revenue. These are: Abolishing the exemption which sees unrealised capital gains are wiped out on death; introducing an ‘additional rate’ for CGT, as there is for Income Tax; increasing the CGT rate in line with Income Tax.
The white paper also addresses what action clients might think of taking to help mitigate the effects of CGT changes, focussing on clients in accumulation, decumulation and those looking to leave a financial legacy. This includes assessing a client’s current position, and whether taking profit prior to any increase in taxation, switching funds, and bringing forward gifting.
Talking to Professional Paraplanner, Dan Atkinson, who joined Paradigm Norton at the start of lockdown, said: “The white paper pools the many years’ experience of the Paradigm Norton team, from financial planners, through the technical team to our tax experts.
“It is designed to give Paradigm Norton clients a well-researched, easy-to-understand assessment of the issues and then, in plain English, to provide key points they should be considering if their tax position might be affected by the changes most likely to occur.
“It’s one way of giving our clients, and potential clients, accessible information to help them assimilate what are quite complex issues with potentially significant financial planning ramifications.”
Paradigm Norton has offices in Bristol, London and Torquay. A copy of The Cost of Covid can be downloaded here.
