Posted on 28 August 2020
Chancellor Sunak’s next budget is scheduled to be delivered in October 2020. Press speculation is rife about possible tax increases. Friend Partnership’s David Gillies shares his thoughts about what this might mean for businesses and family wealth.
Amongst the speculation, it has been suggested that there may be increases in the rate of Corporation Tax to 24% and a possible realignment of the Capital Gains Tax rate with the rate of Income Tax.
A Corporation Tax increase would not seem logical at this point and would run the risk of suffocating any nascent recovery. An increase in the rates of Capital Gains Tax might make more sense politically because many see it, incorrectly, as a tax that is only paid by a wealthy minority. We see it as a direct attack on entrepreneurs and wealth creators.
It was already mooted in March 2020 that there would be a radical shakeup of the Inheritance Tax regime resulting in a reduction of the current reliefs and an increase in the scope of the tax. At the same time, it was also suggested that we could see further restrictions on the tax relief on pension contributions.
Increases in the rate of Capital Gains Tax and Inheritance Tax together with restrictions on available pension relief all target family wealth. If the suggested changes do not happen in October, it is only a matter of time before they reappear given the huge cost to the taxpayer of the measures introduced to combat the COVID-19 pandemic.
If the fruits of a lifetime of hard work are to be protected, timely planning is crucial. Steps can be taken now to soften the impact of future tax rises.
Steps for reducing the impact of future tax increases:
- triggering capital gains while rates are relatively low and Entrepreneurs’ Relief is still available
- passing assets on to the next generations or to a Trust for their benefit to take advantage of current Capital Gains Tax and Inheritance Tax reliefs and rates whilst protecting the underlying asset
- reviewing the structure of trading or investment businesses to protect them against future tax increases
- reviewing succession plans and Will planning to take full advantage of the current, relatively generous, tax regimes before those plans can be impacted by tax increases
The cost of the Government’s response to the pandemic has been massive and unprecedented. There is no doubt that the Chancellor will be looking to target taxpayers to at least partially remedy the situation. Friend Partnership have many years of experience in helping businesses and families to preserve assets and wealth from the threats posed by changes to the tax regime which can often be rapid and unexpected.