The Treasurer, Rishi Sunak, has been kept busy in 2020, forced to continually juggle his spending plans to prop up an economy rocked by a global disaster. The UK is not alone in suffering from financial hardship, but the government has put several measures in place to try and minimise the impact and protect the economy.
In the latest spending review, Sunak warned that there would be repercussions for the unplanned spending and although he stopped short of announcing any tax hikes, that was clearly the underlying message.
The Office of Budget Responsibility oversees the spending review, and they have since warned that spending cuts and tax rises are inevitable in the coming months.
Nothing has been set in stone just yet, but there are many tax increases that are heavily rumoured to be on the table which could impact on property in 2021.
Capital Gains Tax
Capital Gains Tax is one of the most likely candidates to be increased, with the Office of Tax Simplification (OTS) already making recommendations about a hike. The government advisory body has said that it believes the CGT system is too complicated and thinks it should be brought in line with income tax.
This would mean a tax increase for most people affected by CGT, but it’s a move that Sunak is said to be seriously considering. With billions to recoup and a fragile economy that still needs support, a restructuring of CGT would bring in an easy £14 billion.
The changes would effectively double the rates of CGT and remove exemptions, such as the uplift on death. Under the new plans, any CGT liability would still need to be settled, along with the IHT bill. Experts are concerned that the plans could severely hamper those who want to pass things on to their relatives after death, and that it may deter investment in residential property.
Inheritance Tax (IHT) is one of the least popular taxes, but if the rumours are true, the Treasurer plans to tighten up the loopholes. Under the current legislation, individuals can make gifts without any limit on their value and provided they survive for a further seven years, and the gift will be exempt from IHT. It is known as Potentially Exempt Transfer (PET).
The All-Party Parliamentary Group for Inheritance and Intergenerational Fairness made a recommendation in January that PETs are scrapped. They would be replaced by an instant lifetime inheritance tax, charged at between 10-20% on all gifts worth more than £30,000.
If these changes are adopted in 2021, it could negatively impact any substantial gifts, such as property.
When Will Changes Occur?
As nothing has yet been announced, the tax hikes are only speculative at the moment, but many believe it’s only a matter of time. The government is due to undertake another spending review in the spring, and it’s expected that this is when any tax increases will be revealed.