What will be the impact of the Coronavirus on UK Tax?
As lockdowns are eased across the world, attention turns to the economy and how governments might seek to address the huge bills that have come from trying to combat the effects of Coronavirus.
Many are speculating about the way in which governments will seek to pay off their debts. In the UK, after a decade of austerity, there is little scope for further public services cuts. Economic growth looks unlikely to come to the rescue of the public finances either. Even before the pandemic, the UK’s prospects were uncertain due to international trade wars, global economic stagnation and localised fallout from Brexit. Therefore, the majority see changes to taxation as the answer and the potential changes in store for the UK is a hot topic for discussion.
Suggestions for a number of ways the government could pick low-hanging fruit, include:
- Introducing a capital gains tax charge on former main residences passed on after death, with the exception of cohabiting spouses and civil partners and recognised long-term related carers.
- Equalising the rates on income and capital gains tax.
- Significantly reducing the annual capital gains tax allowance.
- Abolishing higher-rate tax reliefs for pension contributions.
On 5th May, a leaked Treasury document indicated that a £337bn budget deficit was now the ‘base case scenario’ for this financial year. The document also included a number of ways that the government could raise funds to cover the deficit. These include an increase in rates/thresholds in one or more of the broad-based taxes (Income Tax, National Insurance Contributions, VAT, Corporation Tax). As well as reforming/ending one of the biggest tax reliefs, the pension triple lock guaranteeing the state pension rises each year by the highest of inflation, earnings growth or 2.5%. A two-year freeze on public sector wages, new green taxes or levies targeted towards the NHS or social care are also being considered.
It is estimated that a 1% increase in the basic rate of income tax would raise around £5bn a year and stopping the pension triple lock would save up to £8bn a year. The two-year freeze on public sector pay could save up to £6.5bn by 2023-24. Though tax rises would break the Conservative manifesto pledge not to increase taxes or scrap the triple lock on state pensions.
However, the most talked about potential tax is one on wealth. According to data released by the Office for National Statistics, UK households own almost £15tn worth of net assets. These include property, savings, investments, private pensions and vehicles, less all outstanding liabilities (for instance, mortgages, loans and credit card debts). A small fraction of that total could cover the forecast fiscal costs of the crisis in their entirety.
The suggestion of a one-off tax on the wealth of UK citizens has been debated by economists and politicians. Though the government has shown no sign of a decision. An emergency budget statement is planned for 6th July. However, it is not thought to be a full budget, that would incorporate tax changes, but an outline of the plan for the UK’s economic recovery.