Capital gains, pensions and inheritance are just some of the areas the government may look at to raise taxes in the Budget, according to Nicholas Nesbitt, partner at Forvis Mazars.
Chancellor Rachel Reeves has said in previous reports, taxes will need to be raised to plug the shortfall in public finances.
Nesbitt has laid out a number of areas the government could consider with some “more likely than others”, he said.
Capital Gains Tax
According to Nesbitt, the CGT regime has already been “squeezed” in recent years with reductions to the annual exempt amount, increases in rates applied to residential property and reductions in the amount of business sale proceeds that attract 10 per cent CGT under business asset disposal relief.
“Increasing the CGT rates now seems the most likely course of action. A probable worst-case scenario would be an alignment of CGT rates with income tax rates. An alternative would be to extend the regime of having different tax rates for different assets (residential property, investment, business assets etc.).
“Ultimately, we expect that if rates are to increase, this may be coupled with an increase in the business asset disposal relief limit on selling businesses from £1mn,” he added.
From a financial perspective, Nesbitt believed it made more sense to realise gains within investment portfolios now at the known rates, instead of deferring the problem with little likelihood of future reductions.
Nesbitt also thought for assets that benefit from an IHT relief it wouldn’t be surprising to see the CGT uplift removed.
Pensions
In terms of the lifetime allowance, Nesbitt thought it was unlikely to be introduced by the government.
He said: “The more likely areas are reducing the lump sum allowance and addressing the taxation of pensions on death. Following the abolition of the lifetime allowance, the LSA is no longer linked to any wider legislation and therefore the government could easily reduce the amount of tax-free cash individuals can take from their pensions.”
According to Nesbitt, given the level of wealth stored up in pensions, he expected the new government may seek to tax pension funds on death moving forward.
“Any consideration around taking lump sums from pensions should weigh up the individual's objectives and the various tax consequences of drawing the lump sum,” he added.
Inheritance tax
Nesbitt did not expect the 40 per cent headline rate of IHT to change, and didn’t expect the nil rate bands to decrease.
He added: “However, we do think the government may look to tighten rules on gifting money away, perhaps by taxing gifts over a certain size, or introducing a lifetime limit of gifts.
“Some other areas that the government could look at are removing business relief on Aim assets, and limiting agricultural property relief.
“Given the uncertainty over how the government might look to change IHT legislation, and given that IHT planning typically involves significant decisions that can impact an individual's long-term financial position, we are being cautious about undertaking planning in this area currently.
