What might change in the 2021/22 tax year – and what should you do about it?
With the March budget coming up, we’re turning our attention to the chancellor’s plans for the next tax year – specifically, whether there will be any tax changes that impact investors and savers. In this article, we outline three key areas to watch in the March budget, plus some practical steps you can take now to mitigate any negative impact.
Will Capital Gains Tax (CGT) get a shakeup?
Quite possibly. In 2020, the Office of Tax Simplification published a review suggesting changes to CGT, including aligning CGT rates to income tax levels, and reducing the annual CGT allowance from its current level of £12,300 per person to as little as £2,000 (but payable on fewer assets). If the government does align CGT rates with income tax levels, then additional rate taxpayers could see their charges shoot up. And if the annual CGT allowance is reduced, even if the tax is payable on fewer assets, the likely result is more people will be liable for CGT.
The key takeaway: If you’re thinking of selling assets that qualify for CGT, talk to an accountant or tax adviser about how – and when – it’s best to do this.
Possible cuts to pension tax relief
Tax relief on pension contributions cost an estimated £37 billion a year, so this is one area that the government may look to trim, particularly for higher earners. At the moment, you can claim tax relief up to the highest rate of tax you pay (subject to pension contribution limits). But some experts are predicting the government may introduce a flat rate of relief, which would negatively impact higher earners.
The key takeaway: If you pay tax at a higher rate, you might want to maximise your pension contributions before the end of this tax year.
What about Inheritance Tax (IHT)?
This could see some changes too, such as changing the nil rate basic threshold, or the residence relief threshold. The government may also look to reduce the amount that can be given away in a lifetime.
The key takeaway: If you’re considering making lifetime gifts, you may want to accelerate this process.
We should stress that nothing is confirmed yet, but it’s still a good idea to talk to your accountant or tax adviser now to ensure you’re taking full advantage of the current allowances and thresholds. Discover how Jupp Castle can help you prepare for the new tax year.
(Image by Tim Hill from Pixabay)