What are the updates to the budget this October?

The second Budget of 2021 was largely about spending, with little movement on taxation, other than as previously announced which means that capital gains tax, inheritance tax, and tax relief on pensions are for now as they were before.

Capital gains tax generated £10.6bn last year, which is only rising as property and investment prices climb. Raising it could have been a lucrative source of revenue to restore the country’s finances after the pandemic.  However, there is currently a new system of paying capital gains tax, particularly on sales of property which means the tax must be paid within 30 days of the sale of the property.  This is currently causing issues to many taxpayers as they are not aware of the system, and the method of making the payments online is cumbersome and not at all intuitive, meaning that fines are arising on a regular basis.  This was recognised in part by the extension of the payment deadline to 60 days form 30, but no improvements to the system are intended.

There has been speculation that the rates of capital gains tax would be aligned with income tax, but this appears to have been postponed.  Mark Routen, Head of Tax for Hoxton Capital expanded “CGT is ripe for reform, but the main concern is the difficulty in making payments and navigating the poor HMRC software, the extension to 60 days to pay the tax is welcome but does not address the fundamental issues”.

With both the CGT annual exemption and the IHT thresholds frozen until 2026, inflation will ensure that revenue from these taxes rises year on year as more taxpayers are drawn into the taxes scope.

An attack on pensions has long been expected, with many expecting that this would be done by reducing the lifetime allowance of limiting the rate at which tax relief is given, however, it did not happen this time. It is likely that these changes will both be introduced at some point, so a review of your current pension provision is recommended.

In addition, pensions can currently be passed on tax-free on death if the person dies before age 75, and at the recipient’s marginal rate of income tax if they die after age 75.  This point may also be under review.

While there were no major changes to income tax it should be remembered that from April 2022 there will be NIC charged on dividends, this will affect many taxpayers who take remuneration from companies as dividends rather than a salary.

A welcome change for many is that duty rates on beer, cider, wine, and spirits will be frozen for another year. Thereafter, the system will be simplified: alcoholic drinks will in future be taxed according to the percentage of alcohol they contain, and the number of duty bands will be cut from 15 to six.

But there is special treatment for draught beer “to recognise the importance of pubs”. Budget documents said: “The government will cut duty rates on draught beer and cider by 5%, taking 3p off a pint. This is the biggest beer duty cut for 50 years and the biggest cut to cider duty since 1923.”

Air passenger duty on domestic flights will be halved benefitting those who travel large distances within the UK. Air passenger duty is a levy paid by airlines, but ultimately funded by passengers through the cost of their tickets, meaning domestic flights will become cheaper. However, for long haul travellers the duty will rise, and therefore the further you travel the more you will pay. The new “ultra-long-haul” rate of air passenger duty of £91 for journeys of more than 5,500 miles will be introduced.  The other rates will be £13 for journeys of 0 to 2,000 miles and £87 for those of 2,000 to 5,500 miles.

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