‘Tax Day’ is a newly-introduced date in the financial calendar scheduled for tomorrow, when consultations on future tax raids could be revealed.
Traditionally this is done at the Budget, but this year the Treasury decided to announce some extra business separately, ‘to allow for more transparency and scrutiny’.
The Government has already unveiled one bit of tax administration news ahead of tomorrow.
It is waiving the requirement to complete inheritance tax forms for more than 200,000 estates, to reduce the amount of paperwork many grieving relatives have to plough through.
Cutting red tape: Many families who do not need to pay inheritance tax are still required to fill in HMRC forms to get probate
But it’s no secret that Chancellor Rishi Sunak wants to replenish Treasury coffers after spending freely to combat the coronavirus pandemic, so could cash-raising measures be on the agenda?
The Treasury stresses that none of what is revealed will require legislation soon or have an impact on the government’s finances, because all that was covered in the Budget on 3 March.
That means any significant changes will be aired and debated now, but implementation could be next year or beyond.
The Treasury says: ‘Several consultations are an important part of the government’s 10-year tax administration strategy to create a tax system fit for the challenges and opportunities of the 21st century.’
The Financial Secretary to the Treasury, Jesse Norman, adds: ‘We are making these announcements separately to the Budget, but still all on a single day, in order to give a range of important but less high profile measures greater visibility among Members of Parliament, tax professionals and other stakeholders, and greater scope for scrutiny by them.’
What Tax Day measures do we know about so far?
At present, many families who do not need to pay inheritance tax are still required to fill in HMRC forms to obtain probate, an important step to gain control over a deceased person’s finances.
This rule will be lifted from 1 January 2022 for more than 90 per cent of non-taxpaying estates.
It will only be necessary if the estate is high value, the deceased lived outside the UK, or more complex reliefs are being claimed, according to the Government.
This was one of the bugbears highlighted by the Governent’s tax gurus, the Office of Tax Simplification, in a previous report on reducing the burden for people inheriting assets from loved ones.
Norman says: ‘We want to cut red tape and make the tax system as simple as possible for people to use, especially during difficult times.
‘The change is part of our wider drive to remove unnecessary paperwork and obstacles so that taxpayers can manage their affairs with less effort.’
The Treasury adds that topics for consultations and announcements tomorrow will include:
– Clamping down on promoters of tax avoidance schemes
– Considering whether tax advisers should be required to hold professional indemnity insurance to help raise standards
– Asking whether the current timing and frequency of tax payments are appropriate.
Tax raid? It’s no secret that Chancellor Rishi Sunak wants to replenish Treasury coffers after spending freely to combat the coronavirus pandemic
What else could be announced tomorrow?
Pension tax relief: Speculation is rife as usual about a big tax grab on pension savers.
Popular tax breaks allow everyone to save for retirement out of untaxed income, which means you get a bigger sweetener the more you earn.
The rebate is based on people’s income tax rates of 20 per cent, 40 per cent or 45 per cent, which tilts the system in favour of the better-off because they pay more tax.
Reform would probably mean the creation of a ‘flat rate’, which at its stingiest would mean the top-up was set at 20 per cent for everyone.
A major problem with hacking back pension tax relief comes from salary sacrifice – a popular way of running company pensions – which would potentially have to be removed to ensure a level playing field.
We explain the pros and cons, and fairness or otherwise of the existing system and any revamp in detail here.
Capital Gains Tax: The Government’s tax officials drew up a blueprint last year to raise a ‘substantial’ amount from the wealthiest taxpayers with an overhaul that would hit stock market investments
This floated hiking capital gain tax to income tax levels, and slashing the annual tax-free amount from £12,300 to as low as £2,000.
Such measures would amount to a substantial raid on profits made from any investments held outside of an Isa or pension.
The move could see the tax rate on capital gains rocket from the current 20 per cent on investments such as shares and investment funds to 40 per cent for higher rate taxpayer. For basic rate taxpayers it would double from 10 per cent to 20 per cent.
CGT changes could also impact second property and buy-to-let owners. This is because the tax is levied on the gains made from the sale of these properties. It is not currently levied on main residences, and an attempt to do so seems unlikely.
On the sale of second homes and buy-to-let properties, CGT rates currently stand at 18 per cent for basic rate taxpayers and 28 per cent for higher rate or additional rate taxpayers.
So, aligning them with income tax at 20 per cent and 40 per cent, and 45 per cent would again take the biggest toll on higher earners.
Inheritance Tax: The Government may not go beyond what it has already announced on this front.
But it is worth noting that the Office of Tax Simplification has also suggested confusing rules on giveaways to loved ones should be scrapped in favour of a single ‘personal gift allowance’.
Meanwhile, a group of MPs separately published a report calling for inheritance tax at 40 per cent to be ditched and replaced with a 10 per cent tax on annual gifts of £30,000-plus and a new death allowance.
In the Budget, the Chancellor said inheritance tax thresholds will remain at current rates until 2026, allowing Sunak to rake in bigger sums from people swept up in their net.
These are currently £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, before your loved ones to have to stump up death duties of 40 per cent.
If you have a partner, own a property, and intend to leave money to your direct descendants, the threshold rises to a joint £1million
Digital tax assessment: Turning the tax system digital is a long held ambition of the Government.
Officials are already looking at whether third parties like pension schemes and financial services providers could help taxpayers and HMRC complete tax returns, and we could hear more on this tomorrow.
According to Steven Cameron, pensions director at Aegon: ‘This could see pension schemes and providers sending HMRC data on pension contributions so that higher rate taxpayers receive higher rate tax relief automatically rather than some having to claim it.
‘Another possibility is to ask investment companies and platforms to send HMRC data of gains made when investments are sold, but this would create many technical and practical issues due to the complexity of CGT, with consumers holding assets on multiple platforms and/or with different investment firms and moving between these.’
Online sales tax: It is unlikely that an online sales tax will be announced tomorrow. The Chancellor is reportedly waiting for later in the year to see if the US President Joe Biden will support reforms to global digital tax rules from the OECD.
An online sales tax has been talked about vastly in recent years, with online giants such as Amazon seeing sales boom – especially during the pandemic.
However, any such tax could be tricky to get right. Many high street names now sell products online and they might favour a cut in business rates instead.
Business rates rake in about £30billion a year for the Treasury. A potential online sales levy of 2 per cent could raise around £2billion each year.
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