Tax rises on the horizon for private clients and owner-managers

Following the Chancellor’s decision to delay the planned November budget until 2021, we have been talking to clients about the actions they could be taking now to prepare for future tax rises, and the tax reliefs they could be taking advantage of while they are still available.

A budget is be expected before the end of the tax year on 5 April 2021, and announcements in March 2021 are likely, which could include anti-forestalling measures.

Ten of the most common actions we have been discussing with clients

1. Making pension contributions while top rate marginal tax relief is available. The chancellor may restrict relief to a lower flat rate of relief.
2. Cashing in on your pension tax free lump sum. The Chancellor may restrict this tax-free amount. However, taking the money brings the funds within the scope of IHT so financial advice is needed.
3. Realising capital gains at current rates. Capital Gains Tax (CGT) rates may be more closely aligned with income tax rates and the Office of Tax Simplification are consulting on changes. Gains could be realised now while rates are as low as 10%, either through a disposal to a third party, or by a transfer to a connected party.
4. Accelerating payments of income where appropriate, for example, dividends. Dividend tax, particularly for close companies (broadly those with a small number of shareholders), is a potential target for tax rises.
5. Banking IHT reliefs. For example, transferring shares that qualify for Business Relief or Agricultural Relief (which may be removed or restricted) into a Trust.
6. Making charitable donations, including gifts of listed shares, to recover higher rate income tax. As with pension contributions, higher rate tax relief might be restricted in the future.
7. Restructuring asset holdings, such as shares to protect business reserves, or property while SDLT rates are low (see our articles Property investors: Is now the right time to restructure? and Protecting the family business – reorganising to reduce risk and find efficiencies).
8. Making distributions of previously taxed income from discretionary trusts. The chancellor may increase the Trust rate of tax, and look to restrict the recovery of tax by beneficiaries.
9. Enable beneficiaries to make pension contributions using money distributed from trusts. This can give rise to marginal rate tax savings at +50%, and at the same time remove the funds from the charge to Inheritance Tax (IHT).
10. Using your normal annual tax reliefs and allowances as soon as possible, including making use of your ISA allowance or spouses tax bands, through planning such as bed and ISA, or bed and spouse – see our pre year-end tax planning article.

For more information on the issues discussed in this article or if you would like to understand the options that may be available to you, get in touch with your usual Crowe contact.