Budget 2021: Here’s what to expect from Rishi Sunak’s upcoming tax announcements

The Chancellor, Rishi Sunak, will deliver his latest taxation and spending policies on 27 October.

The Budget will account for the government’s spending plans and how it intends to fund that spending. While we can only predict what is likely to come up, we already know that the government is adding 1.25% to the annual cost of National Insurance. This will already add hundreds to the tax bills of anyone who earns an income via salaried employment or company dividends.

Other policies we already know are on the horizon:

  • Self-employed tax tweak – as part of the government’s ‘Making Tax Digital’ shift, basis periods for self-employed workers are being reformed. While not costing them more upfront, it will net more income for the Treasury as it speeds up the timeline for taking revenue.
  • Corporation tax hike – a range of coronavirus relief measures are due to expire, meaning that overall corporation tax burdens will rise significantly in the new tax year.
  • Minimum wage hike – announced by Boris Johnson at the Conservative Party conference, the so-called living wage is set to be raised to £9.42 an hour.
  • Student loan repayment threshold – this is likely to be lowered from the current £27,295 salary threshold, meaning more graduates will have to start paying the 9% levy on their incomes.

It is possible that further tax rises or changes to personal allowances may be limited. The government will be (politically) aware that more tax hikes will not be welcomed by the public. But Boris Johnson’s Government still has a lot of time before the next election. With restraint and paying down the debt of the coronavirus heavy on Sunak’s mind, what else could be coming up?

Here are some potential policies the Chancellor could unveil.

Capital gains tax

Recently touted and often referred to, a capital gains tax hike might hit the Conservative’s wealthier voters hardest but would be the easiest to square with the so-called ‘Red Wall’. Capital gains are taxed at a lower level than income, with many critics saying the rates should be equivalent as it effectively gives a tax break to those able to earn a living via capital gains – i.e. people who already have capital.

Inheritance tax

This is another one that has been on the cards for some time, but hasn’t yet materialised. Inheritance tax (IHT) is a much-loathed duty for families to pay after the death of a loved one. But it is also the target of the Office for Tax Simplification (OTS) because it is a very complicated levy to pay and is riddled with rules, exemptions and differing allowances.

Chances are that if Sunak does anything, he’ll work to simplify rather than raise or lower IHT rates. This would likely have the effect of not directly seeming like a hike – but will most likely raise more revenue for the Treasury as people will lose ways to avoid paying.

Pensions tax relief

Almost always on the chopping block but never actually cut (yet) – the rate of pensions tax relief for higher rate payers has been a low-hanging fruit for a long time. Doing away with higher rate tax relief on pensions could net the Chancellor an immediate multi-billion-pound windfall and would only affect higher earners.

If you would like to discuss your portfolio or any of the potential changes mentioned in this article, don’t hesitate to get in touch with your adviser.