Next week’s Budget could include some Sunak Surprises as the Chancellor looks for ways to get the economy moving while paying for the coronavirus bill.
Sean McCann, Chartered Financial Planner from financial advisers NFU Mutual, identifies potential tax changes to watch out for on March 3.
1) Introduction of inheritance tax on pensions
Sean said: “Pensions normally escape the inheritance tax net, but the huge amounts of wealth held in pension funds may be a tempting target for the Treasury.
“Inheritance tax is normally charged at 40% but even a 10% charge on pension funds not left to a spouse or civil partner would raise a significant amount.”
2) Stealth Taxes
Sean said: “There is usually an annual increase in the personal income tax allowance – the amount we can have before income tax kicks in – and the 20% and 40% tax bands. But an easy way the Chancellor can raise more revenue is to leave Income Tax allowance and bands untouched and let inflation do his job for him.
“For two years the tax-free Personal Allowance has been £12,500 – with the next £37,500 taxed at 20% until the 40% higher rate kicks on income over £50,000. As wages naturally increase over time, this would mean more tax collected.
“The Treasury has already published proposed rates for 2021/22 which suggest these allowances will increase – but the Chancellor has the power to reverse it.”
3) Align pensions with ISAs
Sean said: “Another option available to Mr Sunak includes reducing the amount that can be paid into pensions tax free each year from £40,000 to £20,000 to align with the annual ISA allowance.
“This may appeal to the Chancellor as it would reduce the annual £40bn pension tax relief bill.”
4) A one-off Covid Tax – just not immediately
Sean said: “This Budget is likely to be focused on getting the economy moving but there will be warnings of tax hikes to come.
“A one-off Covid tax to pay for the pandemic could be implemented later this year or in 2022 when the economy has started to recover.
“The Wealth Tax commission say a 1% annual tax on wealth over £500,000 for five years, including pensions and property would raise £260bn.”
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