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The 2021 UK Budget Review
Rishi Sunak’s Budget this year was a Budget of two halves. His Budget Speech on 3rd March, only his second as Chancellor, set out a broad 5-year plan combining short term economic stimulus with medium term fiscal tightening. The Treasury had previously announced that the usual clutch of Consultation Documents that are normally published on Budget Day would only be released on 23rd March, which, we felt, may have portended some major changes in the tax system.
Just as with Budget 2020, this Budget was entirely dominated by the financial impact of Covid-19. The Government has borrowed GBP 408bn so far to fund Covid relief alone, and the National Debt is set to peak at 97.1% of GDP in 2023/24. Mr Sunak described repaying this debt as a ‘generational task’. In the meantime, the Government will continue to do ‘whatever it takes’ to protect jobs and businesses. Unemployment has risen, but only to a fairly modest 6.5% with 1.8m fewer people being out of work than would otherwise have been the case. The Office for Budget Responsibility is now anticipating a swifter and more sustained recovery, with the economy expected to return to pre-Covid levels by mid-2022, six months earlier than planned.
We are not remotely out of the woods yet, and the Chancellor is charting a three-stage course over the next 5 years. From the Covid response and relief which has dominated policy-making since early 2020, he is now moving to a generous package of stimulus measures to 31st March 2023. Then, using a jump-started economy as a basis, he will focus upon debt repayment through increased taxation. Over the longer term, the aim is to fund debt repayment through taxation, the fruits of economic growth and, potentially also, a touch of inflation.
The headline stimulus announcements from the Budget Day speech:
- Extension of Stamp Duty relief on the first GBP 500,000 paid towards residential property to 30th June, followed by a reduction to GBP 250,000 before returning to pre-Covid levels of GBP 125,000 from 1st October 2021
- Extension of Social Investment Tax Relief to at least 5th April 2023
- Introduction of 8 Freeports aimed at local regeneration, enjoying enhanced Capital Allowances for business investment, 100% Stamp Duty and Business Rates relief and Employer National Insurance relief until 2026
- An unprecedented ‘super deduction’ of 130% of the value of qualifying business investment between 1st April 2021 – 31st March 2023, and a 50% first year allowance on special assets
- A generous enhancement to the corporate loss relief rules to allow an unlimited carry back of losses to generate prior year Corporation Tax refunds
- The concessional VAT rate of 5% for hospitality and tourism businesses is extended to 30th September, and Business Rates relief for similar businesses is extended to 30th June 2021
The headline announcements to generate additional tax revenues for debt repayment are:
- Headline Corporation Tax rate is to be increased from 19% to 25% from 1st April 2023, but with lower effective rates starting from 19% to apply to businesses with profits of less than GBP 250,000
- Diverted Profits Tax on affected businesses will rise from 25% to 31%
- On 6th April 2021, the Income Tax Personal Allowance will rise to GBP 12,570 and the Basic Rate Threshold to GBP 37,700. Both will then be frozen until 5th April 2026
- The Annual Exempt Amount for Capital Gains Tax will remain unchanged to 5th April 2026
- The Lifetime Allowance for UK Pension Rights will remain fixed at GBP 1,073,100 until 5th April 2026
- The Inheritance Tax Nil Rate Band of GBP 325,000 will also remain fixed until 5th April 2026
Consultation Day did not, thankfully, result in an overhaul of the Inheritance Tax system, pegging Capital Gains Tax rates to Income Tax or indeed the introduction of a one-off Wealth Tax, which had been the subject of much speculation. Instead, the Treasury has opted for a more reserved series of measures. The following are noteworthy:
Timely Payment: The Treasury has called for evidence on a means of bringing the calculation and payment of tax (where there is no withholding at source) closer to the point where the income or gain arises – effectively as ‘pay as you go’ arrangement, rather than needing to wait for Self-Assessment payment deadlines.
Making Tax Digital: The Government has confirmed that Making Tax Digital (a tax filing system which replaces Self-Assessment) will apply to landlords from 6th April 2023.
Raising the Standard of Tax Advice: A Consultation has commenced about how to ensure that professional tax advice is of the highest standard and redress mechanisms where that proves not to be the case – a development we do, of course, welcome.
Tackling Non-Compliance and International Tax Debt: The Government will be publishing a raft of additional measures aimed at taxpayers who are not compliant with their obligations, promoters of tax schemes which fail and mechanisms for enforcing the collection of foreign tax debt.
Residential Property Developer Tax: A new tax will be introduced in 2022 to be levied on the largest developers of residential property in the UK. Time will only tell whether this will be passed onto property purchasers.
Overall, the combined cumulative tax revenue raised by the measures announced in the Budget Speech over the five-year period to 5th April 2026 is GBP 68.975bn; or a mere 17% of the present level of Covid-19 related borrowing. Further measures will certainly be needed in due course, but for the moment the Chancellor appears to be taking the view that it will, indeed, require a generational commitment to repay the debt.
What should I do now?
For British Expatriates and those with assets or pensions in the UK, the Budget and Consultation Day announcements leave us with an obvious call to action. Select Investors invites all British Chamber members to a confidential no-obligation meeting with our Head of Tax, Martin Rimmer to discuss the impact of these announcements on your own tax, succession and wealth plans – and to make them better. Contact firstname.lastname@example.org to book your appointment.