Tax rises for everyone!
There is much speculation as to what taxes will be hit in Thursday’s Autumn-budget and with the government's to-ing and fro-ing since Liz Truss’ mini budget less than seven weeks ago, we are expecting a lot of changes and everyone to be affected.
So what tax rises are the most likely to be announced this week?
There has been some speculation that the Government might announce that the level of earnings at which people pay different rates of income tax may be frozen for longer – a ‘stealth tax increase’. In fact the same could apply to inheritance tax.
The current nil rate band (NRB) and residential nil rate band (RNRB) are already frozen at £325,000 and £175,000 respectively until 2026 and we could see this date being extended. The freezing of bands brings more people into charge for the relevant tax without actually increasing the headline tax rate. An income tax band freeze would see a significantly larger tax yield than that of freezing the inheritance tax bands.
What could be on the horizon for capital gains tax (CGT)? From 1988 to 2008 CGT rates were the same as an individual’s income tax rates. In 2008 CGT was at a flat rate of 18% until 2010, when the higher rate of 28% was added. Then, in 2016 rates were reduced to 10% and 20% except for residential property, which remains at 18% and 28%.
There is speculation that to raise tax revenues we could see an increase in the CGT rates to that of income tax rates. Furthermore, delaying this increase until April 2023, rather than bringing it in with immediate effect on the mini-budget day, also stealthy raises additional taxes as sales are made in the next six months to take advantage of lower rates.
As for corporation tax (CT), merely a week after the article ‘Family Investment Companies are as efficient as ever – Alexandra Clarke’ the government back tracked and decided that actually the corporation tax rate would still rise to 25% from April 2023. It is unlikely that corporation tax rates will be adjusted again this week, but we will have to wait and see if any other announcements adversely affect the tax efficiency of FICs.
Only a few days to find out for certain how we will all be affected.
The Office for Budget Responsibility expects the Government to generate £15bn from CGT in 2022/23. The watchdog had expected revenues from the tax to increase to £21bn by 2026/27 but these estimates are heavily sensitive to market movements.
