Are UK Taxes Likely to Go Up?

Two questions we get asked a lot nowadays are (1) will taxes go up after Coronavirus – and (2) if so, is there anything we can do about it?

The answer to part one of this question must be a categoric 'yes'. The answer to part two however, is less straight forward.

Indeed, if the recent reports are correct, the country may have a deficit of some £335 billion to clear as a direct result of the coronavirus pandemic.To this end, an increase in taxation is an obvious way to help what appears to be a dire position for the country. 

The slightly more difficult answer to 'Is there anything you can do to plan ahead?' really depends on each individual's circumstances - their wealth and what they want to achieve in future by way of short, medium, and long-term goals.

The main taxes available to help manage the UK's deficit are Income Tax, VAT and National Insurance – and all must be in the mix for potential increases, despite Prime Minister Boris Johnson's pledge in the 2019 Conservative Party manifesto not to raise these until 2024.

• Income Tax - An increase in Income Tax of 1% can reportedly raise £5 billion a year. We currently pay Income tax at between 20% and 45% and we'd speculate that these rates are likely to go up – particularly the higher rate;
• VAT rate is currently at 20% on most goods, raised from 17.5% in 2011. Experts predict this will go up but perhaps in more selective ways rather than a straightforward hike across the board;
• National Insurance is levied across employed and self-employed individuals and this is another option for the Chancellor albeit we don't envisage significant shifts here as to do so may be counterproductive;
• Inheritance tax and Capital Gains Taxes will also be in the limelight as will (perhaps) the tax free exemption afforded by current principal private residence relief – e.g. a recent think tank proposed scrapping Stamp Duty Land Tax on the purchase of a main residence and replacing with a 10% Capital Gains Tax on the growth in value;
• Corporation Tax is perhaps bottom of any list as we need businesses to prosper to help fuel the economy. That said, we envisage that there could possibly be an increase in corporation tax rates for those companies generating profits in excess of £20m;
• Reliefs such as Entrepreneur's Relief will more than likely be reviewed.

So – what if anything can you do about any potential tax increases?
Simply put, getting your financial affairs in order and/or undertaking a review of your affairs now might help. 

• Looking at how your income is derived – are you drawing income or capital? Can this be restructured? 
• General planning to consider generating income to be recognised now and/or conversely deferring expenditure;
• Are your businesses properly structured with appropriate stakeholders/shareholders?
• Are you making the most of personal pension contributions? 
• Should you be thinking about putting a Will in place and considering inheritance tax planning? Gifting assets or putting them in Trust? 
• If you are self-employed or in a partnership, consider a change of accounting date which can save tax if done correctly during an economic downturn;
• Incorporating a property portfolio?
• Disposing/transferring of assets whilst Capital Gains rates are relatively low? 
• Review Entrepreneur's Relief opportunities before the relief is (inevitably) withdrawn.

Naturally, there is no certainty as to what will happen to taxes moving forward but there are definitely things that you could be looking at now.

Should you wish to discuss anything in more detail our experts at Sopher + Co are here to assist. Please complete our online contact form, email us at enquiries@sopherco.com or call 020 8207 0602.

-Sanjay Bathija, Chief Operating Officer