Since Rishi Sunak delivered his Autumn Budget on 27 October 2021, experts have pored over what was said and what it means for businesses and individuals across the UK. But how about what the Chancellor didn’t say?
As always, there was a flurry of rumours beforehand about what might be included. So let’s take a look at what didn’t make Rishi’s final cut and what it means for you.
Despite the political sensitivity, pension rules always seem ripe for tinkering in each Budget.
In 2019/20, pension tax relief cost the Treasury £41.3 billion, which must appear a tempting source of funds for any chancellor.
But pension savers need faith in the system in order to make long-term provisions and constant changes or withdrawal of tax relief undermine this. So politicians tend to tread carefully.
There were plenty of rumours in the lead-up to the Budget, from an end to higher-rate pension tax relief, to a flat rate of 25% tax relief for all, to slashed contribution limits.
None of those came to pass, but the lifetime allowance had already been frozen at £1,073,100 until 2026 and the annual allowance remains unchanged at £40,000.
Inevitably, as time goes by these freezes will catch more people above the limits so planning is advised, and we now wait until the next Budget to see if any further restrictions are imposed.
We can help you check that your pension position is optimised and that you are making the most of the current rules.
Business asset disposal relief
Business asset disposal relief (BADR), formerly known as entrepreneurs’ relief, allows business owners who meet certain conditions to pay just 10% capital gains tax on all taxable gains when selling their company.
Normal capital gains tax rates are set at 10% and 20% depending on the beneficiary’s marginal rate. Therefore for a substantial company disposal, BADR offers significant tax savings.
There were fears that the benefit could be reduced or even abolished in the Autumn Budget, but in the end it was left untouched. But because it’s not as contentious to interfere with as pensions, this tax relief may be in the firing line come the next Budget.
If you are thinking of selling your business, talk to us to plan your timing tax-efficiently.
Capital gains tax
The thinking behind rumoured changes to capital gains tax (CGT) in the Autumn Budget was twofold. First, like all tax rises, to raise revenue for the Treasury.
And second, to make the tax system less complex. This was suggested in a report by the Office of Tax Simplification by setting CGT rates in line with income tax rates.
This would mean normal CGT rates rising for basic rate taxpayers from 10% to 20%, for higher-rate taxpayers from 20% to 40% and for additional-rate taxpayers from 20% to 45%. So pretty large rises if you are affected, and a good source of revenue for the Government.
It’s uncertain how capital gains for residential property sales would be impacted by such an alignment or if they would be touched at all. Taxpayers within the basic income tax pay 18% on residential, while any amount above the basic rate is taxed at 28%.
It didn’t happen this autumn, however. And, although the Government recently rejected the Office for Tax Simplification’s suggestion to align capital gains tax and income tax, the suggestion probably won’t go away.
After all, Lucy Frazer, financial secretary to the Treasury said:
“These reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC.
“The Government will continue to keep the tax system under constant review to ensure it is simple and efficient.”
Talk to us if you want to manage capital gains whilst the current, more favourable rates are available.
The inheritance tax nil-rate band was frozen until 2026, which will bring many more people into the scope of inheritance tax.
Some suggested that the taper relief given for transferring assets before death may be reduced or abolished. This did not occur, but could be up for review in a future budget.
If you’d like an appraisal of your inheritance tax situation and how current rules will let you reduce potential liability by making lifetime gifts, please talk to us and we can explain what you can do.
Maybe things will move on and these proposed changes will never come to pass, or maybe you have a window of opportunity to make the most of these tax rules before they are made less generous.
If you would like to ensure your tax position is optimised, arrange a consultation with us.