HOUSEHOLDS can expect a wide range of tax changes in future, as the government is set to reveal new policies and consultations tomorrow.
In what’s been dubbed as “tax day”, expected changes range from a pensions relief shake-up to reduced red tape for bereaved families.
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It comes after households were hit by an income tax threshold freeze in the Budget earlier this month, hitting millions of workers across the country.
Major tax policy changes are typically revealed during the Budget, but they’ve been slightly delayed this year to allow for greater scrutiny.
The majority is expected to be about the technical administration of tax, but Chancellor Rishi Sunak could also lay the groundwork for future changes.
Below we round up potential changes to be announced tomorrow, March 23.
Online sales tax update
There have been a lot of reports about the Chancellor planning to introduce an online sales tax.
In January, Financial Secretary to the Treasury, Jesse Norman, said the new shoppers’ levy may be needed to help pay off coronavirus debt.
Under the plan, a 2% charge could be slapped on all goods bought online in the UK.
At the time, Mr Sunak was said to be keen on the idea, which is projected to raise an initial £2billion extra a year for the nation’s coffers.
Shoppers and retailers will get an update on the proposals tomorrow.
However, a spokesperson for The Treasury told The Sun a final decision will not be made until the autumn.
The Chancellor is said to want to wait to see whether the US Treasury secretary, Janet Yellen, would back a global approach to digital services taxation.
Changes to inheritance tax
The government is also set to make changes to the inheritance tax red tape, which forces bereaved families to needlessly fill out tax forms.
Currently, estates that don’t need to pay inheritance tax are still required to fill in HMRC pre-probate forms.
However, the government is set to change the rules and remove the requirement for more than 90% of non-tax paying families.
It will help over 200,000 estates, according to The Treasury.
The change, which will be outlined on March 23, will apply from January 1 2022 and will be legislated for later in the year.
Pension boost for lower earners
Workers may see changes to the way tax relief is given on pension savings, Kay Ingram, public policy director of LEBC Group, told The Sun.
Tax relief means you’re not paying income tax on whatever you pay into your pension.
Around 1.5million workers currently get no automatic tax relief on their pension savings, due to earning below the £12,500 personal allowance.
Instead their payroll deducts the contributions before any tax is calculated, meaning they miss out on a 20% subsidy from the taxman.
The Treasury has previously proposed to fix this for all workplace schemes by requiring pension providers to collect the 20% subsidy from HMRC and add it to the member’s pot.
This would mean that even if a member does not pay income tax, they still get the 20% uplift to their savings, which is good news for lower earners.
Slashed tax relief for higher earners
Meanwhile, higher rate taxpayers currently get their pension tax relief at the highest rate of tax they pay.
If you earn between £50,001 and £150,000, you pay a 40% tax rate while those on yearly salaries of more than £150,000 pay 45% in tax.
There are rumours that this relief will be scaled back so savers only get the basic rate, which will leave the 17% of workers who earn more worse off.
Andy Bell, chief executive of AJ Bell, added: “Given the black hole the Coronavirus pandemic has blown in the Treasury’s finances, it is no surprise pension tax relief is now firmly in the Chancellor’s sights.
“Pension tax relief across defined benefit and defined contribution pension schemes costs the Exchequer about £40billion a year.”
Pay-as-you-go taxes for freelancers
Reports in The Times have also suggested the government is planning to introduce a new “pay-as-you-go” digital tax system.
The system would reportedly see every taxpayer allocated a single digital tax account, which banks, bosses and pension providers update.
Freelancers, investors and landlords would pay throughout the year rather than on set deadlines.
The reforms are said to be key to recoup the £31billion HMRC believes people aren’t paying in tax each year – 4.7% of all taxes owed.
Bigger taxes on investment profits
Another tax reform that could be announced tomorrow is changes to the capital gains tax (CGT).
In November, the Office for Tax Simplification proposed an increase to CGT rates – which is put on profits – to bring them in line with income tax.
It recommended reducing the amount people can make a tax-free profit on, from £12,300 a year to between £2,000 and £4,000.
Wealthier savers, those who inherit property, second-home owners, buy-to-let landlords and entrepreneurs who sell their businesses could be among the hardest hit by the proposed tax tweaks.
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Tom Selby, senior analyst of AJ Bell, told The Sun: “It’s worth noting the Treasury has said announcements on March 23 will not have fiscal implications, meaning the most we can probably expect is a consultation or call for evidence rather than concrete proposals for reform.
“If CGT and income tax are eventually aligned this would have significant implications for property investors as well as anyone holding assets outside tax wrappers.
“Were this to happen, vehicles like Isas and pensions – which are CGT-free – would become more attractive.”
Martin Lewis urges married couples to claim £1,188 tax break before April 5 – or miss out on £250
