The Office for Budget Responsibility (OBR) recently commented that with the significant and unprecedented Government support to help deal with the Covid-19 health crisis they are expecting a budget deficit of £280 Billion in the 2020/21 financial year. With some businesses closed temporarily and many people furloughed, the UK Government has provided huge and welcome support to businesses and individuals to help, as far as they can, over this torrid period.
Whilst the Government can continue to borrow to support this investment it does, however, mean the Government is clearly going to need to raise revenue to pay for the coronavirus crisis at some point in the future. The OBR also highlighted that approximately £174 Billion could be raised relatively easily through a series of “Wealth Taxes”.
We highlight below some current opportunities that could, therefore, come under consideration.
Abolishing higher-rate tax relief on pension contributions has long been discussed before a budget. Higher rate taxpayers receive tax relief at 40%. In the March budget The Chancellor relaxed the rules on how much higher earners can save into their pensions while receiving tax relief which could well be reversed as quickly as it came.
According to data from HM Revenue & Customs published in October 2019, in the first 6 months of the last tax year IHT receipts reduced £316 Million to £2.4 Billion, compared to the same period the previous year. This was considered to be partly as a result of the introduction of the Residential Nil Rate band allowance introduced in April 2017. The subject of further IHT reform has been on the agenda now for a number of years. Could we now be expecting a further tightening up on this area rather than any beneficial changes?
The current allowance for each individual is £12,300 (Trusts allowance -£6,150). This means you can hold an investment (OEIC/Unit Trust/Investment Trust) or other investment assets (other than your own home) and the profit will only be taxed after the allowance is taken off. Reducing this allowance would be another way to raise additional tax revenue.
Each individual currently has a £20,000 overall ISA allowance per tax year which increased gradually since they were first introduced back in 1999. Now be the time to see a different approach to this valuable savings allowance?
Whether these happen will clearly be up for debate and consideration when we get to the other side of Covid-19. However, for those people who are considering taking advice in any of the above areas, we would suggest that now would be a good time to do so, whilst we definitely know the allowances and opportunities remain fully available.
At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We can provide a full review of your financial affairs and discuss the opportunities available to you with our compliments in the first instance. You can also now do this remotely by video, telephone as well as face to face.