The 2021 Budget is on its way.

The Chancellor, Rishi Sunak, will deliver the Government’s annual statement on pay, pensions and taxes on Wednesday 3 March.

And while we don’t yet know exactly what it will include, there’s been plenty of speculation about the contents of the Chancellor’s red briefcase.

What we can be sure of is the ongoing Covid-19 pandemic will play a major role in what’s announced, as it did in the March 2020 Budget.

Pre-Budget recovery plan

Ahead of next month’s Budget, Mr Sunak is planning to publish a ‘recovery plan’ on Monday 22 February.

The plan will outline medium-term proposals to boost investment and skills. And it will be unveiled alongside Prime Minister Boris Johnson’s ‘roadmap’ for easing lockdown restrictions.

What could be in the 2021 Budget?

The coronavirus pandemic continues to have a major impact on the UK economy. According to the National Audit Office’s latest Covid-19 cost tracker, measures announced in response to the crisis are predicted to cost £271 billion.

So, questions remain about how the massive Covid-19 bill will be paid.

Here, we consider a few of the tax areas that could be included in the forthcoming Budget…

Property tax

The Treasury might decide to replace council tax and stamp duty with a new annual tax. This proportional property tax could be levied on the existing value of your home.

And if you own more than one residential property – for example, if you’re a landlord – the tax would apply to each property you own.

Capital gains tax

There has inevitably been speculation that capital gains tax (CGT) could see changes.

The Chancellor could decide to raise the top rate of CGT to 45%, bringing it in line with income tax.

Inheritance tax

Inheritance tax (IHT) could be in line for reform, with one idea being the abolition of the potentially exempt transfer (PET) policy.

The PET allows you to make gifts of unlimited value without incurring an IHT bill, provided you survive for seven years from the time you make the gift.

Corporation tax

Mr Sunak is believed to be weighing up the option of increasing the main rate of corporation tax from 19% to perhaps as high as 24%.

Income tax

A planned 0.5% rise in the tax-free personal allowance could be axed. This would mean the threshold at which you start paying income tax would stay at £12,500.

Our thoughts and advice

While it’s inevitable there will be significant changes to the tax system because of the level of borrowing during the pandemic, it’s unlikely any major tax changes will take place during the 2021/22 tax year.

That’s because the Government’s main priority is expected to be ensuring the economy is on the road to recovery before carrying out big changes.

But tax reforms will come over the next few years. This could include changes to inheritance tax and capital gains tax, and the possible introduction of a new wealth tax. So, it’s important for you to take every opportunity you can to plan your affairs ahead of this.

Unfortunately, there will be a period of financial uncertainty for several years to come, until we establish a new normal in the economy and in the world generally.

The team at Churchill Taxation can help you with a range of tax matters, including planning for capital gains tax and inheritance tax. Call us today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation