In today’s Budget the Chancellor pledged to not raise the rates of income tax, national insurance contributions or VAT. These taxes account for two thirds of the UK’s tax revenues so paying down the debt left from the COVID-19 support will have to come from elsewhere. The Chancellor’s delay in making any immediate tax changes means individuals have some welcome extra time to prepare and ready themselves for future tax changes.
There were no increases in the rates of Capital Gains Tax (CGT) or Inheritance Tax (IHT) but the allowances for both of these taxes will remain frozen until April 2026.
Not increasing allowances for these taxes means that as inflation drives up asset prices or the value of an individual’s estate for IHT purposes, greater amounts will eventually be subject to tax in the future.
When introduced the government pledged to increase this valuable IHT relief with Retail Price Index (RPI) to ensure that as the value of people’s residential property increased, the IHT allowance would track inflation.
Freezing the RNRB means that as the UK property market continues to go from strength to strength, more and more people will be dragged into paying IHT.
On the 23 March the government will publish details of future consultations. It remains to be seen whether the reforms or increases that many people believe were going to be announced today will be revealed on that day.
Over the last 18 months there have been numerous reports and commentary on changes to both the CGT and IHT regimes. Given the need to plug the gap in the nations finances it is surely a question of when, not if, increases and reform will be upon us.
In these uncertain times with tax increases likely around the corner, it’s important to be prepared and have a plan.
Plotting out key life events can help you understand when to take action to lock in the current low rates of tax versus holding assets for the longer term to weather any short-term increases.
Secondly, making a plan ensures that your affairs are structured in the optimum manner to achieve future goals while qualifying for any available tax reliefs.
With frozen allowances and thresholds, failing to take any action will mean that hard earned family wealth may be eroded unnecessarily.
Making lifetime gifts to the next generation
Year end tax planning opportunities for individuals
Pension contributions: act now to maximise tax efficiency