The recent National Insurance hike has sparked a big debate in the UK over how the Government should pay for its pandemic spending. Many were left furious with the tax rise, as younger working people will be more affected while some wealthy people will be spared a tax hike at all. This has led to calls for changes to wealth taxes, ensuring that the bill falls with those who have the broadest shoulders. Experts and politicians have also long bemoaned the complex nature of the British tax system, with some suggesting wealth taxes could be simplified.
One expert believes Chancellor Sunak won’t be afraid to raise taxes on the wealthy.
Julia Rosenbloom, tax partner at Smith & Williamson, told FT Adviser last month: “Inheritance tax receipts are proving to be an increasingly lucrative source of revenue for the Treasury and provide funds to the government to help rebuild the country following the pandemic and pay for its planned programme of reforms.
“The Prime Minister’s recent announcement introducing a new health and social care levy demonstrates that he is not afraid of tax rises, even if they are unpopular with some members of his own party.
“This raises speculation that when the Chancellor unveils his Budget next month, personal taxes such inheritance tax and capital gains tax could be in for reform given the amount they raise for the Treasury.”
Shaun Moore, tax and financial planning expert at Quilter, agreed with Ms Rosenbloom, noting that inheritance tax receipts were up 35 percent between April and August year on year.
He said: “While this is a decent uplift for the chancellor, it is really a small beer when compared to other forms of tax.
“This is why the chancellor may well be looking elsewhere to raise some serious cash in his Budget come the autumn.”
“The chancellor needs additional funds to pay for the pandemic’s economic support schemes.”
HMRC data published last month showed that inheritance tax receipts were up £700million in the period, reaching £2.7billion, as both the nil rate band and residence nil rate remained frozen at existing levels.
Paul Archer, wealth planner at Kingswood, explained why inheritance tax receipts are on the rise.
He said: “The main reasons for the rise in inheritance tax receipts are threefold.
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“First, the nil rate band of £325,000 ‒ the asset amount an individual has free before they are charged inheritance tax at 40 percent ‒ has not risen since 2009.
“Second, estate values have risen in the last year mainly due to strong investment returns and property value rises.
“And third, the majority of wealth in the UK is owned by the over 60s, which is the age bracket where sadly Covid has resulted in more deaths than usual.
“Indeed for these reasons, we expect to see receipts rising steadily this year and into 2022.”
It appears the next big tax change could be in the form of a council tax rise, as ministers are reportedly considering a hike to plug the hole for social care funding.
Asked whether the Government could increase tax again so soon after putting up national insurance to fund the NHS and social care, Mr Sunak said that increasing the tax burden was “not something we did lightly”, telling Times Radio: “It’s not something we want to do, and ideally we wouldn’t have to do anything like that again.”
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Pressed on whether council tax could increase to fund social care, he said it would be wrong to “pre-empt” the local government finance settlement later this year.
He told Sky News: “What people should know is we want to put more money into social care, that’s why we took the decision we did.”
Councils have been promised a £5.4billion thanks to the health and social care levy, announced last month.
However, half of this funding will go to capping the lifetime amount people must pay for care at £86,000.
Councils are concerned that the other half will be lost to fees paying for care homes in order to reduce costs for the middle classes, who currently subsidise those who do not pay for themselves.
Currently local authorities can only raise council tax by two percent, plus a further three percent earmarked for social care.
If they want bigger increases they must call a local referendum, something that has only happened once and resulted in a heavy defeat for the idea of a tax hike.
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