Rishi Sunak delivers his second Budget on 3 March against the backdrop of record government spending and escalating national debt. There is much speculation that the Chancellor will use the Budget to balance the books and introduce tax hikes. Increases to income tax and VAT seem to be off the table, as it could hinder much-needed economic growth. However, there are a number of other lesser-known rates that he could target that would produce significant windfalls for HM Treasury – so called stealth taxes.

Capital Gains Tax

Capital Gains Tax (CGT) – the levy you have to pay when you make a profit on an asset sale –is one tax thought to be in Sunak’s sights. CGT is currently charged at 10% for basic rate taxpayers and 20% for higher rate payers. This rises to 18% or 28% respectively if you’re selling a second property. It is thought the Treasury is toying with the idea of reforming the tax, bringing it in line with income tax. That would mean raising the rates to 20% for basic rate taxpayers and 40% for higher rate taxpayers. According to a review by the Office for Tax Simplification this could net an extra £14 billion for the Treasury, and bring to an end what it calls various ‘distortions’ caused by differing rates between CGT and income tax.

Pensions tax relief

Pensions tax relief reform is something that has been discussed in political circles for some time. The relief is designed to incentivise people to save for their retirement by diverting some of the money you would have paid in tax into your pension instead. At present, higher rate taxpayers have a better deal, gaining 40% relief on their pension contributions, compared to 20% for basic rate taxpayers. It has been suggested the Treasury could introduce a flat 20% rate of relief, saving it more than £20bn a year.

Property wealth tax

HM Treasury is said to be looking at the idea of an annual property ‘levy’ or wealth tax. This would replace council tax and stamp duty completely and be revenue neutral – meaning that the treasury would not bring in extra cash from the changes. It would, however, hit hardest those people living in areas where house prices are higher, such as London and the South East. A 0.48% annual levy has been proposed. A homeowner in London with a property worth £516,000 – the average for the area – could expect to pay £2477 a year under the new system. Someone with a property worth £140,000 in North East of England would pay just £672.

One-off wealth tax

Another idea recently touted was that of a one-off wealth tax – amounting to 5% of an individual’s wealth, paid in 1% increments over five years. The plans, suggested by the Wealth Tax Commission, would see anyone with wealth over £500,000 impacted. This idea is however less likely to gain traction than others, considering the Conservative Party’s generally reticent attitude to creating new taxes, particularly on older, wealthier voters.

While these ideas have all been either leaked or touted in the press in one way or another, none are guaranteed as of yet. If you would like to discuss the potential implications of any of these changes with your adviser, don’t hesitate to get in touch.