Tax Day 2021: inheritance tax changes and tax-as-you-go self-employment on the cards

Tax Day 2021 was hyped up for big changes to the tax system, but instead households were given small tweaks.

Households were braced for a series of tax hikes on so-called ‘Tax Day’ earlier this month – but their finances were left largely untouched. After Chancellor Rishi Sunak’s Budget on 3 March led with a raft of allowance changes, the rumour mill began churning once again as the Treasury announced its intention to publish tax-related measures on 23 March.

What was announced?

The most concrete announcement from the Treasury related to the reporting of estates for inheritance tax (IHT).

Currently all estates have to file paperwork to HMRC whether or not they fall above or below the thresholds for paying IHT. The Treasury has scrapped this requirement for estates that sit below the £325,000 threshold to pay. The Treasury says as a result 90% of estates will no longer have to fill out IHT forms but in practice this is a little unclear as it hasn’t explicitly said what the requirement will be to fill one out. With plans to be implemented by 1 January 2022, households will have to wait and see for more detail.

The taxation of trusts was also raised in the update. The Government has been looking at how trusts work for tax purposes with a view to potentially cracking down on some of the methods used to avoid paying more tax from estates. It has however decided to back away from making any changes thanks to what it sees as a lack of ‘desire for comprehensive reform’. While less often used as a means to avoid tax these days, trusts do have some IHT advantages. Individuals can set up trusts worth up to £325,000 every seven years as a means to avoid paying any IHT on that amount of their overall estate without incurring a 20% charge.

Elsewhere, inquiries into changing the way self-employed people pay tax and a closer look at tax avoidance schemes have been announced.

While neither of these offer concrete policies, both indicate a direction of travel in government when it comes to obtaining people’s tax in future.

If you would like to discuss any of the themes in this article, don’t hesitate to get in touch with your financial adviser professional connections contact to help you in advising your clients.