Zena Hanks, a partner in the Private Wealth Group at Saffery Champness has been considering some of the announcements in today’s Budget:
“Following a raft of recent reviews and consultations many were expecting some announcement of broader tax reform, not least with regard to Inheritance Tax, Capital Gains Tax (CGT) and Stamp Duty. What today’s Budget amounts to is essentially a moratorium on the UK’s current tax system which, while perhaps sensible in the short term as the economy strains to cope with Covid-19, is unlikely to be an indefinite policy position. Clearly this Budget was deemed not to be the time nor place, but what is to be hoped going forward is that the current crisis can serve as a trigger to a broader and mature debate about some of the fundamental aspects of our tax system.
“The decision to freeze the personal allowance and higher rate band from next year until April 2026 might allow the government to stick to its triple lock on Income tax, NIC and VAT on a technicality, but some may consider it a fairly inequitable way of increasing tax revenue, as the less you earn the more the frozen allowance will influence your take home pay over-time as fiscal drag kicks in in line with inflation. Similarly, many individuals’ income depends on the buying and selling of CGT chargeable assets like property or shares, and they could see their income significantly affected by the decision to freeze the annual CGT exemption until April 2026.
“The Chancellor was careful to set his Corporation Tax hike in the context of the other G7 economies but the fact remains that the rise to 25% reverses many years of Conservative policy and is arguably a dent in the hopes of many who will have been hoping that, post-Brexit, the UK would pursue an aggressively low tax business agenda. The hedge against this is the temporary Super Deduction tax relief in place for two years or , essentially, until the new rate of Corporation Tax takes effect. The Chancellor will be hoping that this short term boost to investment will turbo charge growth and the UK’s attractiveness for investment in the short term, making the tax increase on the horizon somewhat more palatable.
“The Chancellor has certainly taken a long term view of the Covid-19 recovery. It was clear to all that current and projected levels of public borrowing sat uneasily with a government which has always pitched itself on its fiscal prudence. At the same time, the Chancellor is not only acutely aware of the fragility of many businesses and individuals finances, he is also aware that delaying action would likely have meant announcing tax rises closer to the next general election which would have been politically unpalatable to the government. With the announcements today the Chancellor has laid out the roadmap to recovery while also, potentially, giving him the license to perhaps reverse some of the decisions taken today as the next election nears if the investment he is hoping to encourage kick-starts significant economic growth.“