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Roxboro February 2021 Newsletter

It’s end of tax year planning time!

Last year, Autumn came and went without an Autumn Budget. To be fair, Rishi Sunak, had already presented a March Budget and the pandemic made forecasting for 2021/22 all but impossible.

It is difficult to assess what the Chancellor might do in his second Budget. He will be ending the current financial year with a record-breaking government deficit of around £400bn. Whilst he will wish to address the black hole like level of debt he will be wary of putting too much of a dampener on what is left of the economy until some form of recovery is well under way. He will also be mindful of manifesto commitments not to increase Income Tax and National Insurance. Taxes on businesses and capital are likely to be initial targets perhaps with notice of further tax rises in other areas to come.

Planning amidst the uncertainty

We do not know what will happen but there are several areas where action may be worthwhile prior to 3 March.

  • Pensions

A change in the personal tax relief on pension contributions is a regular pre-Budget rumour.  Any cut would be more likely to affect higher and additional rate taxpayers more than those paying basic rate tax.

Our advice would be to make any planned lump sum pension payments now rather than later. It is worth remembering that you may be able to take advantage of unused annual allowances from the past three years (back to 2017/18) to justify a larger contribution.

  • ISAs

Plans to put a cap on ISAs were reportedly considered by the Treasury in 2013 and the topic was recently revised by the Resolution Foundation.

ISAs offer a quartet of tax benefits:

  • Interest earned on cash or fixed interest securities is free of UK income tax.
  • Dividends are also free of UK income tax.
  • Capital gains are free of UK capital gains tax (CGT).
  • ISA income and gains do not have to be reported on your tax return.

Again, our advice is if you are planning to make payments do so before the Budget.

  • Capital Gains Tax

In November the Office of Tax Simplification (OTS) published the first of what will be two reports on CGT reform. Its suggestions included:

  • ‘More closely aligning Capital Gains Tax rates with Income Tax rates’, which could mean more than a doubling of the current tax rates in some instances.
  • Reducing the level of the annual exemption from the current £12,300 to an ‘administrative de minimis’ of between £2,000 and £4,000.
  • Removing the rule which gives a Capital Gains Tax uplift on death for CGT purposes. Currently, this can provision often entirely eliminate CGT upon death so this would be a very significant change.

This trio of measures, if introduced would create a massive additional CGT burden for many investors. Hence, it is a good reason to review any unrealised gains in your investments now.

  • Inheritance Tax

On becoming Chancellor, Rishi Sunak inherited a pair of reports on Inheritance Tax (IHT) which had been commissioned by Philip Hammond so changes would not be unexpected.

Ahead of the Budget you should consider using the three main IHT annual exemptions:

  1. The Annual Exemption Each tax year you can give away £3,000 free of IHT. If you do not use all of the exemption in one year, you can carry forward the unused element, but only to the following tax year, when it can only be used after that year’s exemption has been exhausted.
  2. The Small Gifts Exemption You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 exemption.
  3. The Normal Expenditure Exemption The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions and one most likely to be reformed. Currently, any gift is exempt from IHT provided that:
  1. you make it regularly;
  2. it is made out of income (including ISA income); and
  3. it does not reduce your standard of living.

If you have the surplus capital available, you should also think about making large lifetime gifts. This could include gifting investments, thereby also using your CGT annual exemption. One of the OTS reform suggestions was the abolition of the normal expenditure rule and the introduction of an annual limit of IHT-free lifetime gifts.

  • Venture Capital Trusts and Enterprise Investment Schemes

Traditionally, the first three months of the calendar year see the launch of offerings from Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs). Subject to generous limits, both offer income tax relief at 30% on fresh investment, regardless of your personal tax rate, and freedom from CGT on any profits. EISs can also be used to defer CGT, although this may be an unwise move given the possibility that CGT rates will rise. VCTs and EISs are high risk investments and have become more so following changes introduced from 2018/19.


The sooner you start planning ahead of 3 March, the better. February is already upon us, so contact us now if you wish to arrange for a year-end tax planning review. This is particularly important if you want to maximise your pension contributions, as obtaining the relevant data can take time.

A UK Wealth Tax?

In November, the Office for Budget Responsibility put the cost of dealing with the pandemic so far at £280bn, which in headline writer’s terms is £4,125 a head for each and every member of the UK population. By something that was far from coincidence, in December a report was published suggesting that a UK wealth tax could raise £260bn.

The status of the report

The report was published by the Wealth Tax Commission, with a foreword written by Lord Gus O’Donnell (aka GOD), former Permanent Secretary to the Treasury, Cabinet Secretary and Head of the Civil Service. The report’s main authors were three well-respected academics, one of whom is also a barrister specialising in tax. Despite the heavyweight backing and Commission title, the report had nothing to do with the government but was instead funded by a variety of research bodies, including the London School of Economics and Political Science.

Both Boris Johnson and Rishi Sunak made clear their dislike of a wealth tax when the Commission first came to the fore in the Summer. However, the cost of the pandemic has escalated rapidly since then, forcing the Chancellor into regular extensions of his expensive support schemes.

Polling consistently shows the most popular tax increases are those that affect other people – higher tax is always a good idea, provided somebody else pays. Wealth tax is a classic example but, as the Commission’s main proposals show, to raise meaningful sums requires measures that reach well beyond the multi-millionaires.

The proposals

The proposed tax would be a one-off charge of 5% of each individual’s net wealth above £500,000. Values would be fixed on or shortly before announcement of the tax, to limit the scope for avoidance. Crucially, wealth would mean everything the individual owns, including the value of private pensions, the family home, businesses, farms and tax-favoured savings, such as ISAs.

Although a one-off tax, the Commission envisaged that most of the 8.25m wealth tax payers would opt to pay in instalments over five years – hence the many press references to the tax being 1% a year. For those with illiquid assets, such as property or private businesses, payment could be deferred but, as with the five-year option, there would be interest charged on all payments.

The Commission stressed that the tax would not be an annual tax, which has proved difficult to administer in many countries that have tried such an option.

Will it happen?

It is difficult to imagine the current government imposing a wealth tax, not least because its impact would be heavily weighted towards London and the South East.  The story could be different under a different government, but with an 80 seat Conservative majority that is unlikely before 2024.

On the other hand, the wealth tax proposals do provide cover for the Chancellor to reform and increase other taxes on wealth – Capital Gains Tax (CGT) and Inheritance Tax (IHT). As we mention above, there are reports on revamping both taxes from the Office of Tax Simplification in Mr Sunak’s in-tray.


Be aware that higher taxes on wealth could be on the way.

It is impossible to plan for a tax which does not – and may never – exist. Instead, concentrate on what you can plan for, taking advantage of today’s CGT and IHT exemptions and reliefs.

The Triple Lock minimum wins again

In early December the Department for Work & Pensions announced the proposed increases to benefits for 2021/22. Most of the working age benefits and the earnings-linked pension benefits, such as the old State Second Pension, will rise by 0.5%, in line with annual CPI inflation to September 2020. However, the new state pension and its predecessor will both increase by five times as much.  

The costly Triple Lock

Both new and old (basic) state pensions benefit from the Triple Lock, which currently requires an increase which is the greater of:

  • Earnings growth;
  • Price inflation (as measured by the CPI); and
  • A floor of 2.5%.

For the 2021/22 increase, the 2.5% minimum was a clear winner, with earnings growth at the bottom of the trio.  In this context earnings growth is a misnomer; earnings fell by 1% over the year because of the impact of the pandemic.

Over the ten years to 2021/22, the 2.5% floor has been the basis for four increases, something which was probably not anticipated when the Triple Lock was announced by the coalition government in 2010. Then, as now, the Bank of England’s inflation target was 2.0%. Earnings were expected to outpace inflation by 1% or more, making the 2.5% floor a safety net that probably would only be called upon in a deep recession.

It has not worked out that way. Earnings and inflation have virtually matched each other over the period at just under 2%. In other words, there has been no increase in the buying power of average earnings over the past ten years. In contrast the Triple Lock has delivered a real terms increase of almost 11%. If you are on the receiving end of the Triple Lock, that is good news, but if you are under State Pension Age (66 now, don’t forget) it means more government expenditure you have to finance.

Looking ahead

The Triple Lock has been widely criticised by experts ranging from the Institute for Fiscal Studies to the Pensions Select Committee for being an unnecessarily expensive protection that creates intergenerational unfairness. In private politicians would generally agree but, at the last Election, all of the mainstream political parties committed to retaining the Triple Lock. The pensioner vote is not one to put at risk.

The pandemic may have changed that mindset. Last year the government introduced emergency technical legislation to ensure the Triple Lock would work in the face of zero earnings growth. However, the measures put in place only applied for a single year. There have been suggestions that, if no action is taken, an earnings bounce in 2021 as the economy recovers could mean a 5% 2022/23 increase under the Triple Lock formula at a time when inflation is below 2%. Given the dire position of public finances, such a scenario would offer Rishi Sunak the golden opportunity to justify a reworking of the Triple Lock.


Despite the new state pension’s outpacing of inflation and earnings growth, it will remain a distinctly modest sum in April 2021: a maximum of £179.60 a week. Viewed another way, that is equivalent to just over 20 hours’ work at the National Living Wage rate for 2021/22 (£8.91 an hour) or a little under one-third of current average earnings (£560 a week). No wonder the UK is likely to remain in bottom place of the OECD’s league table based on the proportion of earnings replaced by state pensions…


If you want to check your projected state pension benefit, go to

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at 4 January 2021. No action must be taken or refrained from based on its contents alone.  Accordingly no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction.  Professional advice is necessary for every case.

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