Coronavirus: Will tax rise after Rishi Sunak’s ‘colossal’ bailout? Clues may give warning
The coronavirus crisis is having a devastating impact on the UK. Not only is it affecting people’s health and seeing thousands lose loved ones, but much of the population have been hit financially. During the UK epidemic, Chancellor of the Exchequer Rishi Sunak has announced a whole host of emergency measures in response to the economic impact, pledging to do “whatever it takes” to support households and businesses through the crisis.
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While many will no doubt be focused on working out how they can make ends meet in the short-term, others may be wondering about what the billions of pounds of Governemnt support could mean for their personal finances in the long-term.
Recouping the huge sums is something which may affect taxpayers in the future, Becky O’Connor, personal finance specialist at Royal London, suggested.
Speaking exclusively to Express.co.uk, Ms O’Connor said: “The best things in life might be free, but billions of pounds of Government support is not. There has to be some way of recouping this colossal cash injection and that usually involves tapping taxpayers.
“The amounts involved are so huge that rebalancing the books is likely to be a very long term project when we come out of the other side of this. I’d be surprised if there were sudden steep rises in taxes as the Chancellor will be keen not to knock a recovery off course.”
Patrick King, Partner at MHA MacIntyre Hudson, spoke to Express.co.uk about the potential tax issues which the UK could encounter following the coronavirus crisis.
“The sums Rishi Sunak has promised to help the country weather the COVID-19 storm are truly eye-watering and at some point the vast increase to the UK debt mountain will need to be addressed,” he commented.
“While it is true that this debt will need to be paid for a long time in the future, there could also be more short-term measures affecting us in the next few years – and there were clues in the Budget and in recent publications which give some warning of what may come.”
Expanding on these possible hints, Mr King said: “In the Budget there was reference to increased anti-avoidance and greater resource for HMRC in ensuring compliance.
“Businesses and individuals alike should therefore expect greater scrutiny of their tax affairs and perhaps an increase in targeted enquiry activity.
“When announcing support for the self-employed, Mr Sunak also strongly suggested that he would be looking to potentially equalise their tax and NIC costs with employed people, as they were getting ‘equal’ support with the COVID-19 support payments of up to £2,500 per month.
“The government has looked at this before and been forced to back down, but the current crisis gives a clear opportunity to try again with the moral high ground in their favour.
“Indeed, it is common in Europe for self-employed individuals to in effect have to treat themselves as employees of their own businesses, with the resultant employer and employee social security contributions. The self-employed should brace themselves for this in the coming years.”
This is something which Ms O’Connor also highlighted.
“The Chancellor hinted at an equalisation in the tax treatment of the self-employed and employees in future as he announced the support package for the self-employed, so a rise in national insurance contributions for the self-employed, if not all of us, is probably on the cards,” she said.
“Beyond this, there are few direct clues from the Government about how all this will be paid for.
“In terms of helping those in debt, it is possible that forbearance from lenders may have to last longer than the initial three-month period initially laid out, but this may be something the Government keeps under review.
“It will depend on how quickly employment recovers and how quickly employees come back off furlough.”
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During the coronavirus crisis, the Bank of England last month took the decision to slash the Bank Rate from 0.75 to 0.25, ahead of a further cut to just 0.1 just eight days later.
The second decision took the Base Rate to a new historic low.
And, according to Ms O’Connor, low interest rates could remain at low levels for some time.
“Interest rates are likely to stay low for the foreseeable future, so the cost of borrowing will remain relatively cheap, mostly benefiting those with mortgages,” she said.
“The flipside of this of course is that savings rates are virtually down to zero, with a few exceptions, so catching decent savings rates will become an art form.
“This is disappointing, to put it mildly, for those with large cash balances in savings as they are losing money in real terms and it’s hard to see a time when this will no longer be the case, at the moment.”
Mr King also commented on another form of taxation. “Finally there is capital taxation,” he said.
“The department for tax simplification and the ‘All Party Parliamentary Group (APPG) on inheritance tax and intergenerational fairness’ have both recently issued well thought out reports for the reform of IHT and capital gains tax.
“Both have references to the loss of the tax free uplift on death for capital gains tax purposes but it is the APPG which is being truly revolutionary. This group suggests the abolition of IHT and its replacement with a gift tax (during life or on death at say 10 percent).
“If this proposal were to be introduced, there would be no reliefs other than the inter-spouse exemption and the current nil rate band of £325,000. Lifetime gifts of up to £30,000 would be allowed, but above that the tax would apply.
“There would be no tax free uplift on death for capital gains tax, so that the full gain in an asset will be taxable whenever it is sold in the future.
“For the vast majority these changes would make little or no difference and may indeed be beneficial for the squeezed middle. However, for the wealthy, the business owner, the large farmer etc – such changes could be very expensive indeed.
“Currently assets can be given away more than seven years before death and be exempt from IHT, whilst business and farm assets can qualify for business property relief and be tax free.
“Under the new proposed regime tax would be due, albeit at the low rate of 10 percent (suggested in the report), but this is still a large increase on the current situation.”
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