CHANCELLOR Rishi Sunak will set out plans to boost the UK economy in his Budget next month.
This could mean tax rises as the government looks to balance the books after borrowing a record £284.7billion following the coronavirus crisis.
This amount includes funding schemes such as furlough and bounce back loans for businesses.
The Budget is when the government outlines its plans for tax hikes, cuts and things like changes to the minimum wage.
It will be held next month on Wednesday, March 3, 2021, after being pushed back from last autumn.
A specific date for the autumn Budget was never confirmed but Mr Sunak cancelled it back in September in favour of an update on how the government will support families and businesses through the pandemic.
What is the Budget?
THE Budget is when the government outlines its plans for tax hikes, cuts and things like changes to the minimum wage.
It’s different to the Spending Review, which sets out how much public cash will go towards funding certain departments, devolved government’s and services, such as the NHS.
The Budget is read out in the House of Commons by the Chancellor of the Exchequer. It will be Rishi Sunak’s second Budget as Chancellor.
Mr Sunak’s first one in March last year has been dubbed the “coronavirus Budget” after it focused on supporting Brits financially through the crisis, rather than the government’s “levelling up” agenda as promised in the 2019 general election.
Normally, the Budget is held once a year but the unprecedented circumstances of the pandemic in 2020 saw Mr Sunak give a “mini-budget” in the Commons on July 8.
For this Budget, there has been talk of tax changes to repay the UK’s borrowing and boost the coronavirus-hit economy, but there are fears that it could be too early to hit households with increased bills.
The Conservative Party had a manifesto commitment, called the “triple tax lock”, that pledged to not raise the rates of income tax, national insurance or value added tax.
Mr Sunak is reported to want to keep to this, according to the Financial Times, but any changes – if any – won’t be confirmed until the Budget.
Here are some of the tax changes the Chancellor could make and how they could hit your wages and your wallet.
Capital gains tax
Currently, everyone has a yearly allowance that lets them sell assets such as shares or a second property with the first £12,300 free of capital gains tax.
Mr Sunak asked the Office for Tax Simplification (OTS) to review the current capital gains tax system last year.
The OTS released its review in November 2020 and suggested the rate could be doubled from the current 10% for basic rate taxpayers to 20%.
For high earners, they suggested doubling the rate from 20% to 40%.
The OTS also proposed lowering the tax-free threshold and said the current system “distorts behaviour” as people try to lower their bills.
Mr Sunak hasn’t given any indication of changes.
The Treasury responded at the time that it would consider the findings but its priority was supporting the economy.
Currently, an individual can pass on £325,000 of their wealth tax-free to their loved ones.
There is also a £175,000 allowance for their main home, giving an individual £500,000 in total.
Families have to pay 40% inheritance tax on anything above this.
HMRC also provides a gifting allowance of £3,000 that lets you pass down assets such as cash tax-free each year while you are alive.
There is also a £1,000 allowance for parents, rising to £2,500, for grandparents, to contribute to a child’s wedding.
This means an older relative can see their loved ones enjoy hard-earned money that they would have passed on.
But MPs on the all-party parliamentary group for inheritance and intergenerational fairness last year suggested putting a limit on how much can be given away tax-free in someone’s lifetime.
Dhana Sabanathan, a partner at advisers Winckworth Sherwood, warned this could affect how much money parents or grandparents pass on to their loved ones.
She said: “The current rules do not place a limit on the amount a person can gift away during their lifetime.
“This means that it is possible for significant wealth to be passed from one generation to another, with no inheritance tax due.
“By abolishing these rules, the proposals seek to catch more gifts, but suggest the tax rate should be lower.
Mr Sunak hasn’t given any hints about whether inheritance tax could be reformed.
Businesses currently pay corporation tax of 19% on their profits.
It is the fourth lowest rate in the Organisation for Economic Co-operation and Development.
But Mr Sunak is rumoured to be considering hiking the rate to 24%, according to the Sunday Times.
Jon Hickman, tax partner at BDO, said: “This might not seem very supportive of struggling businesses but perhaps a limited rise in corporation tax rates for larger companies that have fared well during the pandemic is possible.
“It wouldn’t directly hurt loss-making businesses or small businesses and probably wouldn’t have an immediate impact on consumer spending.”
Academics and economists on The Wealth Tax Commission proposed a 5% levy on housing, pension, business, equity and savings wealth in December, and forecasted that it would raise £260billion.
The levy would tax UK residents with assets worth half a million pounds or more – including their homes and pension.
Mr Sunak is rumoured to have rejected these suggestions though.
All pension savers get tax relief on their contributions.
The government takes what you would have paid in income tax and puts it in your pension instead.
Basic rate taxpayers get a 20% boost and higher earners, those earning more than £50,000, get 40%.
Additional rate taxpayers, who earn more than £150,000, can get 45% relief.
There are rumours each year that this relief will be scaled back so savers only get the basic rate but there has been no suggestion that Mr Sunak will do this.
Steven Cameron, pensions director at Aegon, said the chancellor could instead create a flat 25% rate for everyone.
He said: “One rumour is the Chancellor is attracted to moving to a flat rate of tax relief at 25% rather than topping up individual pension contributions based on the individual’s ‘marginal’ income tax rate.
“This would be good news for basic rate taxpayers who could receive a larger top-up but not for higher and additional rate taxpayers who’d receive less generous top-ups than currently.”
The stamp duty holiday on property purchases up to £500,000 ends on March 31.
Buyers can currently save up to £15,000 of tax on a property purchase.
There have been calls to extend the tax break to keep the property market going and ensure sales don;t collapse in the coming weeks.
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Up until July 8, most house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.
This was temporarily increased to £500,000 until March 31, 2021 in the government’s mini-Budget in July 2020.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you’re a first-time buyer.
The usual system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2% if it is worth between £125,001 and £250,000
- You pay 5% if between £250,001 and up to £925,000
- You pay 10% if it is between £925,001 and £1.5million
- You pay 12% on anything over £1.5million
For second homes or buy to let properties:
- 3% on purchases up to 125,000
- 5% on purchases between £125,001 and £250,000
- 8% on purchases above £250,001 and £925,000
- 13% on purchases above £925,001 and £1.5 million
- 15% on purchases above £1.5 million
Stamp duty rates are different in Scotland and Wales.
A parliamentary debate was held this week where MPs called for reform.
Treasury minister Jesse Norman said he understood the frustratons but couldn’t comment outside of a “fiscal event.”
It is unclear if this means something will be included in the Budget next month.
There are calls for the government to extend its Coronavirus Jobs Retention Scheme (CJRS), or furlough while some businesses are forced to remain shut.
The government currently covers 80% of an employee’s wages if they have been furloughed, up to £2,500 a month.
Mr Sunak hasn’t mentioned extending the schemes but denied last year that it would last beyond October.
It has now been extended three times already.
Firstly, it was pushed back from its initial deadline on May 31 to October 31.
The scheme was then extended to last until March 31, 2021 following the second national lockdown in England.
Current lockdown restrictions aren’t expected to be eased until at least March this year.
Some jobs will continue to be affected by the lockdown measures and Mr Sunak could choose to extend the scheme to support them.
Last year, the Chancellor announced a £20 a week boost to Universal Credit to help low-income families through the pandemic and lockdown restrictions.
But the hike, worth £1,040 a year, was only a temporary measure set to last a year.
MPs have backed a Labour motion to extend the payments.
Mr Sunak is reported to have rejected calls to extend the £20 boost and there was rumours of one-off £1,000 payment, which have been rejected by work and pensions secretary Thérèse Coffey.
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These are five key dates that will affect your personal finances this February.
Read everything you need to know about the 2021 Budget.