Spring Budget 2021: What To Expect
The upcoming budget to be unveiled by Chancellor Rishi Sunak on 3 March 2021 promises to be unlike any seen before. Given the spiralling government debt from measures such as the Bounce Back Loan Scheme and Coronavirus Job Retention Scheme-together costing the treasury nearly £100bn-to support businesses and soften the impact of Covid-19 to the British economy, Chancellor Sunak has made it clear that fiscal discipline is imminent. A multiplicity of proposals have been put forward as to how HM Government should go about repairing public finances which have been left in shambles following a year of unprecedented government spending.
Let’s kick off with the least likely but most potent option available to the government-a wealth tax. Studies have suggested that levying a one-off wealth tax worth 5% on assets valued above £500,000 could raise as much as £260bn in the best of circumstances and enable public finances to be placed on a much stronger footing almost immediately. Nevertheless, the incidence of this tax is subject to heated debate since wealth doesn’t always equate to liquidity. Farmers, already suffering from the fall out of Brexit given the hold ups in supply resulting from additional red tape, might own a valuable plot of land and as a result fall into the taxable category. Yet, they are unlikely to be able to afford such a tax since the margins on their agricultural produce are slim and prices for commodities such as milk have faced a continuous decline in the past as a result of excess supply and farmers had to be supported by government subsidies to maintain their income.
Far more plausible and discussed in our previous article, a hike in capital gains tax, potentially equating it to income tax rates depending upon the kind of taxpayer one is, is very much on the cards. Capital gains tax on assets excluding property have been well below personal income tax rates with basic and higher rate taxpayers being charged 10% and 20% respectively on capital gains whilst their incomes are charged at 20% and 40% respectively. Individuals such as retired individuals who survive through the sale of securities that they invested in earlier are beneficiaries of the existing regime, but the system has been abused by others when selling shares to avoid paying tax.
Hikes in taxation are almost inevitable given the Prime Minister’s promise that the UK will not return to austerity and this leaves the Chancellor with few other alternatives to repair public finances.
But it’s not just individuals who are expected to bear the economic pain, word is that the Chancellor may also heighten the corporate tax rate which currently stands at 19%-well below the OECD average of 23.5%-closer to 23%. Employers’ expectations of respite through continued government grants and other forms of monetary support may also be misplaced since government support schemes will begin to wind down come mid-2021. The rollout of the vaccination program has lent fresh hope to the chancellor that the economy will be back on its feet by autumn 2021 with the belief that enough people will be vaccinated to return to ‘normal’. However, instead of providing direct monetary support, employers might be incentivized and subsidized via vouchers and other schemes to train and hire new staff in order to alleviate the anticipated spike in unemployment once furlough and other schemes come to a close.
To better understand how to prepare for the incoming budget and how to shore up your personal and business finances, contact us as soon as possible for the best guidance on tax optimization and wealth enlargement. At Cheylesmore Accountants, we keep you at the forefront of all the new updates and insights which can impact your livelihood and help build resilience as well as add value to your business. Call now to book a meeting or fill out our quick and simple form using the ‘Contact Us’ tab at the top of the website page.
