Tax Admin Day – what might be on the cards?
18 March 2021
With the Government’s “tax consultation day” less than a week away, what might be on the cards for investors.
Despite earlier speculation, the Chancellor failed to unveil any radical changes to taxes in the 3 March Budget. Pensions tax relief was left untouched, while wealth taxes including Capital Gains Tax (CGT) and Inheritance Tax escaped unscathed.
However, with the Government’s hands tied by its Manifesto pledge not to increase income tax, national insurance or VAT, Aegon pension director Steven Cameron warns that the Chancellor may move to make changes to these areas when his strategy and consultations are published on 23 March.
There has been ongoing speculation that the Chancellor may look to reform CGT by aligning CGT rates more closely to those of income tax or reducing the annual CGT exemption which currently sits at £12,300.
Cameron says: “Reform of CGT would present some complex trade-offs between different groups affected and the Chancellor may decide to formally consult on this. While it may seem justifiable to increase the tax take of those realising large gains on assets outside of pensions and ISAs or on the sale of second homes, the Chancellor might wish to protect small business entrepreneurs who sell their business, perhaps to fund their retirement. This could be through a more generous form of the existing business asset disposal relief.”
According to Cameron, the Chancellor may also look to change inheritance tax rules, with the Office of Tax Simplification having already published two reports making recommendations aimed at simplifying IHT including around gifts, while an All Parliamentary Group has called for a complete overhaul of IHT.
One suggestion is to bring death benefits from pensions into the scope of IHT, but Cameron warns this would cause a “multitude of knock-on consequences” and go against the Government’s push to encourage greater retirement saving.
Cameron says: “Death benefits from pensions are currently typically paid at the discretion of trustees or scheme administrators and are free of IHT. When saving in a pension, the vast majority of people are doing so to provide a retirement income, rather than to pass on an inheritance.
“Bringing accumulated pension funds or ‘death benefits’ into an individual’s taxable estate on death would seem particularly harsh and unjustified. We need to encourage people to save more into pensions so creating a possible tax liability for ‘good behaviour’ would be highly counterproductive.”
Cameron argues that if death benefits were brought within IHT, it could also prevent individuals from leaving money in their fund and instead take more income sooner, increasing the risk of people running out of money before death.
A move to align income tax and national insurance for employees and self-employed may also be on the cards, says Cameron. The Chancellor has provided support to both parties and has hinted that equal support may justify equal income tax and national insurance.
Cameron adds: “Of course, it’s an over-simplification to say either pandemic support or state benefits are equal – for example the self-employed are not entitled to statutory sick pay or pay during parental leave. But now might be an opportune time to start exploring the many complexities of aligning income tax and NI for employees and the self-employed.”
Finally, the Government is expected to take a more digital approach to collecting taxes, with the OTS currently reviewing the role third parties could play in supplying data direct to HM Revenue & Customs to pre-populate tax returns.
This could see pension schemes and providers sending HMRC data on pension contributions so that higher rate taxpayers receive higher rate tax relief automatically rather than having to claim it.
This week sees the launch of The Paraplanner Club, a new initiative devised by Siân Davies Cole and Chloe Phillips, a mentoring...
Professional Paraplanner has teamed up with Brand Financial Training to answer your questions around the exams scheduled for 2021....
Are you signed up to the Professional Paraplanner daily website alert? For more technical, tax, pensions, investment, retirement, protection...