Budget 2021 - Into the Unknown
Rewinding the clock 12 months and reflecting on the article that I wrote ahead of the March 2020 budget, it is interesting to note that the publication started by observing how much had happened since the previous financial statement!
Nobody could have anticipated the events of the last 12 months, writes Matt Herd – Personal Tax Director with Ensors Chartered Accountants.
It is hard to imagine that just over a year ago, the vast majority of us had never heard of Rishi Sunak or been introduced to his ‘whatever it takes’ catchphrase.
The budget that Rishi Sunak delivered on the 11th of March 2020 saw the introduction of some of the first financial support measures announced by the Government in response to the coronavirus outbreak.
Since then a raft of additional support packages have been introduced, with many being increased and extended in response to the ongoing impact of the pandemic on individuals and businesses.
The 2021 budget is likely to focus heavily on the Government’s ongoing response to the pandemic.
There are calls for the Stamp Duty holiday (currently set to end on 31 March 2021) and the Furlough scheme to be extended beyond April 2021. The Chancellor is also expected to announce details of the fourth Self Employed Income Support grant.
The Chancellor will almost certainly provide details of how much the pandemic has already cost the Government as well as projections of the anticipated future spend.
With the figures running in to the hundreds of billions, the question of how and when the Treasury will start to repay such eye watering amounts will ultimately need to be addressed.
The Chancellor may decide that the time to start introducing measures to tackle the government borrowing is now!
However, in such unprecedented times it is hard to anticipate how the Chancellor might seek to raise additional revenue, particularly if he intends to do this through tax rises.
It will be interesting to see whether he will stick to the Conservative manifesto that there would be no increases in the rates of Income Tax, National Insurance and VAT for the whole of this parliament. If he decides that he can’t increase these taxes, the Chancellor may instead look to make changes to Capital Gains Tax and/or Inheritance Tax.
Inheritance Tax Reform?
Prior to the arrival of COVID 19, both the Office of Tax Simplifications (OTS) and the All Party Parliamentary Group (APPG) produced reports looking at the administration of the existing Inheritance Tax (IHT) system. Both reports suggested that the current framework requires simplification and made recommendations for how the legislation might be reformed.
Both the OTS and APPG reports consider the abolition of Agricultural Property Relief (APR) and Business Property Relief (BPR). The APPG report went further in recommending a complete overhaul of the legislation including the removal of the current “tax free uplift” applying on death for Capital Gains Tax (CGT) purposes.
While the recommendations seem likely to achieve significant simplifications, they could see the IHT liability of many estates increase substantially as well as the level of CGT due on the future sale of inherited assets by beneficiaries.
At the time of writing, the Chancellor has not presented his ‘Recovery Plan’. It is understood that this would be delivered alongside the Prime Minister’s roadmap to exit lockdown. This may allow the Chancellor the opportunity to unveil new and ongoing support measures ahead of announcing the ‘necessary’ tax increases needed to fund his Recovery Plan when he delivers his Budget.
As a final thought, and to finish on a positive, it is interesting to note that some commentators have gone as far as suggesting that taxes may not rise if the UK’s vaccination programme leads to an economic boom.