March 23rd is Tax Day
March 23rd has been an important day in the diary for weeks as the Government singled out this particular Tuesday as the day it would release a number of key tax-related consultations not published alongside the Budget earlier this month.
However, so-called Tax Day has turned out to be a relatively tame affair for personal finance, with the Treasury ignoring key reforms that have been in the firing line and subject to previous consultations: pensions tax relief, inheritance tax and capital gains tax.
No changes to pension tax relief
In a call for evidence published last July, the Government admitted it has never provided a “straightforward and proportionate” solution to the challenges in the current pensions tax relief system. However, it was not addressed today despite the rumour mills spinning ahead of ‘Tax Day’.
In that 40-page call for evidence last year, however, the Treasury outlined the differences in outcomes for some low earners under the current relief system, which affects around 1.5m people. It has also collated issues raised by stakeholders along with suggestions for changes to the tax relief administration.
It was released after first being announced in the 2020 Budget and came after a report published by the Public Accounts Committee (PAC) called on the government to conclude whether the £38bn estimated cost of pensions tax relief in 2018/19 was effective. The PAC said the government had failed to estimate whether the cost is an encouragement for retirement savings and said HM Revenue & Customs (HMRC) needed to publish data to show a clear breakdown of groups benefiting from relief.
Ex-pensions minister Sir Steve Webb, a previous guest on The Retirement Café podcast, said: “In a blizzard of Treasury documents on tax, it is pretty shocking that they have failed to address a longstanding tax injustice affecting around 1.5m lower paid workers. The Conservative manifesto promised to tackle this issue, whereby large numbers of workers miss out on tax relief through no fault of their own.
“There have been enough consultations and it’s time for a decision and action.”
No change to Capital Gains Tax
A report from the Office for Tax Simplification (OTS) published last year said that CGT intake could be doubled to £14bn if it is brought in line with income tax. However, no such proposals have emerged.
Government spending during the pandemic has pushed the UK’s national debt to more than £2trn and it could take decades to pay it off. If the proposals had progressed, the rise would most likely hit wealthy people who have second homes and buy-to-let properties, as well as individuals with investments outside of tax wrappers.
For basic rate taxpayers earning less than £50,000, CGT is currently levied at 18% on second homes and 10% for other assets. Higher taxpayers whose income is more than £50,000 currently pay 28% on residential property and 20% on other assets.
Currently less than 1% of the population pay CGT.
IHT red tape removed
Bureaucracy linked to inheritance tax (IHT) for smaller estates will be scaled back to make the process simpler, the Treasury has announced.
The move will see lower value estates’ form-filling burden reduced. It would apply to estates that fall below the main IHT threshold of up to £1m for the surviving partner. The change is in response to the Office of Tax Simplification’s 2019 report on the issue.
Inheritance Tax bureaucracy
Many families who do not need to pay IHT are still obliged to fill out HM Revenue & Customs (HMRC) forms to obtain a grant of probate after a loved one dies. However, from 1 January 2022, this rule will be lifted for more than 90% of non-taxpaying estates.
The Government said it would still be required if the estate is of high value, the person lived outside the UK or more complex reliefs are being claimed.
Documents released today (23 March) added the current temporary provision for those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will be made permanent.
Chancellor Rishi Sunak froze many personal taxation thresholds in the Spring Budget on 3 March. This included IHT – meaning more people would end up paying the tax in the coming years.