This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
You might have noticed some headlines and social media posts asking about what will happen to UK taxes later in 2020. This understandably comes as a concern for many people who might be facing financial difficulties in the wake of COVID-19 and the resulting lockdown since March 2020. Indeed, one study by the Institute for Social and Economic Research in April suggested that 6.5m people could lose their jobs as part of the economic fallout; about 25% of total UK jobs. Some sectors such as food services could lose as much as 75% of their workforce.
This is clearly concerning, and our Lancashire-based financial advisers have been working hard to help people ensure their finances and wealth are in the best possible position. Yet it’s important to take stock of what might lie in store later in 2020, particularly with regards to the economic outlook and possible changes to the tax system. In this post, we pay particular attention to the latter to help clients in Lancashire stay informed about the latest developments.
You’ll find some of our thoughts below on possible tax reform in 2020. Please note that this is not a prediction of the future, but an assessment of possible scenarios based on the limited information available in May 2020. Please speak to an independent financial adviser here at Elmfield about your tax planning strategy if you wish to arrange a free consultation.
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Paying for the March 2020 handouts
Few people will have failed to notice the huge spending commitments made by the government in March 2020. The new Job Retention Scheme outlined by Chancellor Sunak, for instance, promised to pay 80% of furloughed workers (up to £2,500 per month) who had lost work due to the COVID-19 outbreak. Sunak also offered a £330bn in business loans to small-medium sized businesses (SMEs) to help keep the economy afloat. All of this adds up to a considerable rise in government spending, pushing the UK’s forecasted deficit to as high as £260bn in 2020-21; up from £48.7bn in 2019-20.
This raises the unpleasant question – how will the government eventually pay for all of this? The Conservative Party won its December 2019 general election victory with a pledge to not raise taxes during its term in office, but the global economic context has shifted considerably since that time. As a result, some commentators are now speculating that tax rises and reforms may come into force later this year – possibly in the Autumn 2020 budget.
Possible tax targets
Here at Elmfield, our Lancashire-based financial advisers are not here to comment on the merits or drawbacks of UK tax reform. However, it is our job to help clients in Padiham, Burnley and further afield to get the best deal from their tax planning. That includes helping people anticipate possible changes to taxation and offering bespoke solutions to help each household prepare for different possible scenarios.
Here some of the areas of taxation which might come under the spotlight later in 2020, or in the years ahead. Please consult your financial adviser if you are concerned about how changes to the tax system might affect your tax strategy and wider financial plan:
- National Insurance Contributions (NICs). One promise of the UK government in early 2020 was to raise the NIC threshold for the 2020-21 tax year. It seems unlikely that this will be reversed at this point due to the political backlash this could cause. However, one area that could be targetted in the near/medium future is NIC for the self-employed, which could be equalised with those paid by employed people.
- Pension tax relief. Prior to the March 2020 budget, there was some speculation that the Chancellor might equalise the tax relief offered on pension contributions. This did not transpire in the end, but it could be resuscitated by the Treasury in the near future. Here, the 40% tax relief offered to Higher Rate taxpayers could be lowered to the 20% which Basic Rate taxpayers claim, as this could save the government £40bn a year.
- Inheritance tax (IHT). After the Second World War, the UK government turned its attention to IHT in order to help facilitate the country’s economic recovery. IHT rose to 80% and by 1969 had even peaked at 85%. This level is unlikely to be introduced under the Conservative government in 2020, yet there were calls by a cross-party group of MPs in January of this year to reform IHT. The proposal, in short, was to simplify the system by lowering IHT to 10% on all estates worth up to £2m. In exchange, the tax-free exemption on gifts would be scrapped. This idea or similar ones could be brought back into focus as the UK government seeks to reverse the trend in reducing annual IHT receipts, and plug the gap in the public finances.
Conclusion & invitation
If you are interested in starting a conversation about your financial plan, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938