Already the seers are lining up to offer their predications on what will be included in the Chancellor’s Budget 2021 on 3 March.
My mantra is always “never prophesy, especially about the future” but as a tax advisor, this has sometimes to be more honoured in the breach than in the observance.
The sensible money seems to be on tax increases to help pay for the cost of supporting the economy during the pandemic.
I am always wary about the predictions which fall into the Nostradamus camp. These are the hardy annuals which, if you predict them enough, eventually they may well happen. In particular one needs to be careful where the predictions morph into rumours with an echo chamber effect. Thus the financial services industry will always predict constriction of the pension relief scheme and also of inheritance tax reliefs in order to drum up business.
There are also some seers who are cursed to be like Cassandra, always accurate but never believed.
The Chancellor has some finely balanced judgments to make. Chancellors tend to be adept and canny. They will go for the lower hanging fruit. They will not want to jeopardise votes. Hence tax on wealth might engender popular support but it is easy for the super-rich to move to a more benign tax jurisdiction or generally organise their wealth to avoid tax. Equally, the Chancellor cannot afford to antagonise the wealth creators and entrepreneurs with actions which might prompt them to relocate or to set up in another more fiscally friendly location.
My own take is that an astute Chancellor (and we have in situ) will go with the lowest hanging fruit in this Budget 2021.
This is simply to just freeze allowances. Gentle inflation then does the rest. Indeed, we may have more than gentle inflation if the economy expands too quickly post-pandemic with demand outstripping supply.
Accordingly we will see the following thresholds frozen as they have been a generation or more in some cases:-
- The partial exemption threshold for VAT purposes will stay at £625 per month.
- The threshold at which child benefit is abated will stay at £50,000.
- The threshold at which the personal allowance starts to be abated will stay at £100k, thus continuing to enshrine the Jimmy Greaves MBE principle.
- The IHT lifetime allowance will stay at £325k and there will be no extension in the residential nil rate band.
- The IHT annual allowance, small gifts relief and the other IHT reliefs (weddings) will also stay the same.
- The dividend allowance will stay at £2k.
- The property income allowance and the investment income allowance will both stay at £1k.
- The VAT threshold will stay at £85k.
My advice to clients would be they should only undertake an action because it makes commercial sense to do and not be driven by the rumour mill. Nevertheless, if one is going to take an action anyway then it might be sensible to try and do it prior to Budget day, in case the Chancellor attacks this area.
For example, if one has decided to make a pension contribution in the current tax year, I might look to do it before 3 March in case the Chancellor removes higher rate relief or otherwise restricts the relief available.
It might also be sensible to dispose of an asset, which is subject to Capital Gains Tax, if one possibly can, in case there is a realignment of CGT rates so as to be taxed as if it were the top slice of income. I do think this is unlikely. CGT is, more than most taxes, a discretionary tax. If the tax hit is too high, then one will not incur the liability, where there is any choice.
The team at Lambert Chapman are ready to advise if you are contemplating any pre Budget actions or indeed any pre tax year actions.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.