Chancellor Rishi Sunak is preparing to announce his Autumn Budget on 27 October 2021. With two weeks to go, AJ Bell’s experts look at the areas which could most affect people’s personal finances.
Laura Suter, head of personal finance at AJ Bell:
Capital Gains Tax
“This could be the big change we see announced on Budget day, with increasing ‘wealth taxes’ being a popular move to help restore the country’s finances after the pandemic. Capital gains tax generated £10.6bn last year, and this is rising as property and investment prices climb.
“The speculation is that the current capital gains tax rates of 10% and 20% (or 18% and 28% for property) will be scrapped and instead everyone will pay income tax rates on their gains. This move was mooted by the Office for Tax Simplification last year in its review. The stipulation from the OTS was that investors should get some sort of inflationary relief, so they are only taxed on above-inflation gains. Clearly any relief would reduce the tax-take for the Government, so that may be quietly ignored in any final rules.
“In a less radical move, the Government could cut the tax-free allowance from its current £12,300. The allowance has already been frozen until 2026, but now the manifesto promise of no tax increases has already been cast aside, there’s no barrier for Rishi Sunak to cut the allowance. Chopping it in half, to £6,000, would generate £480m, while cutting it to £2,500 would give an £835m boost to Government coffers, according to OTS predictions.”
“The Government is caught between a rock and a hard place with fuel duty. The tax on petrol and diesel has been frozen for the past 11 years and now feels like a ripe time for that to change.
“However, on one hand, the last thing people need right now is prices at the pump rising further, after surging oil prices and the recent petrol crisis driving prices up. Alternatively, the Government is still pushing its green agenda and maintaining the fuel duty flies in the face of that. With this particular political hot potato it feels likely that the freeze will be over, but with the government delaying the tax increase to next year – in the hope that fuel prices will have reduced by the time it kicks in.”
“Massive reform has already happened to dividend tax rates, but that doesn’t mean more tweaks are off the table. The tax on dividends will rise from April next year with an additional 1.25 percentage points on each rate to help pay for social care. But if the Government cut the current £2,000 dividend tax-free allowance they’d drag more people into the new tax rates.
“It would be a politically clever move to separate the two changes, if a little sneaky. At the current allowance the Government says 60% of people with dividend income outside an ISA or pension are within the current tax-free limit, which has to look like a fairly juicy percentage to reduce. The Government has form on this, having already cut the rate from £5,000 to £2,000 in 2019, so a cut to £1,000 or even £500 wouldn’t be impossible.”