The drivers for tax change in the UK

Political and financial drivers underneath tax changes announced in 2021.

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Tax change in the USA

New tax surcharge on Billionaires proposed in the USA.

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Capital Tax Reform

With no reform of CGT or IHT announced in the Autumn Budget, what is the likelihood of future reform now?

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Will there be CGT change in the upcoming Budget?

Will there be CGT changes in the Budget on 27/10 and what action, if any, should be considered ahead of then?

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Pre Budget thoughts

After Budget One and “Budget two” what might the Budget on the 27th October hold.

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Claire Trott, Financial Planning Week tip: Maximising pensions tax reliefs using carry forward

With the deadline for the Mandatory Pension Savings Statements being this month (6 October) it is now that you can calculate what your clients’ available annual allowance is because the information should now be to hand.

The basics

Carry forward allows clients to utilise unused annual allowances from the previous three tax years. You must first use the current tax year fully and then use the oldest tax year next and so on. The important thing to be sure of is that the client has enough, not necessarily to get too hung up on which year it is used from at this point in time. Exceeding the annual allowance including carry forward will mean tax charges, designed to recoup tax relief given. The tax charge is payable by the member, even if contributions have been paid entirely by the employer.

If total contributions do not exceed the annual allowance including carry forward then there is no need to declare this on a tax return, only contributions in excess of this need to be declared in the pension tax charge section of self assessment. However, for those contributing to a relief at source pension scheme, who are higher or additional rate tax payers they will need to ensure they claim any extra tax relief due. This should be done even if they exceed the annual allowance so as not to be unfairly penalised.


We have to remember that not everyone is eligible for carry forward, they must have been a member of a scheme in the years in which they are carrying forward unused annual allowance.

This doesn’t just mean a contributing member, but also anyone with a deferred pension scheme, such as an old final salary pension or even a contracted out rebate scheme for instance.

But if this is their first pension contribution ever, then carry forward isn’t available. In additional, if the client is subject to the money purchase annual allowance then carry forward is only available in relation to defined benefit accrual.


The annual allowance is a test on total pension contributions including personal tax relief received by the scheme and employer contributions, and therefore when carrying forward the annual allowance from the previous three years it increases the total amount of pension contributions that can be paid within the current tax year. What it doesn’t do is bring forward unused tax relief, so for personal contributions there is a limit on the amount of tax relief available equal to £3,600 or 100% of relevant UK earnings within the current tax year. This means that for many they will have significantly more available annual allowance than they can pay with personal contributions alone.

It is important to remember in addition that carry forward isn’t limited by the clients earnings in previous years, so if they had earnings of £20,000 and paid a £10,000 gross personal contributions with no employer contributions then £30,000 carry forward would be available.

Tapered annual allowance

Pension savings statements or contribution histories provided by schemes will not take into account the tapered annual allowance. Schemes are not responsible for this calculation because they do not have sufficient information to do the calculations. Therefore, it is important to fully understand the client’s income, including in previous years. If the tapered annual allowance applied in previous years, it is this figure that will be used in the carry forward calculations, not the standard annual allowance


There are many moving parts when dealing with tax relief on pension contributions which are important to understand. My colleague Chris Jones provided some tips earlier in the week on “Making the most of pensions tax relief ahead of another Budget” which covers many of these complex aspects and so worth a read.

Hannah Coffey, Financial Planning Week tip: Vulnerability considerations

As Financial Planning Week is once again upon us and we are reminded of the importance of the financial sector to help clients clarify their goals and to create a plan to achieve these goals, we should also, this year, be considering the vulnerabilities of clients – not only as a result of the Financial Conduct Authority (FCA) guidance produced earlier this year, but also, of course, as a result of the pandemic and this ‘New Normal’ we find ourselves in.

It has always been important to ensure that we understand clients as part of a holistic approach. But what they want, what’s important to them, their goals and their aspirations, may well now be quite different to how they were 12-24 months ago. In addition to this, we are made increasingly aware of the vulnerabilities, or potential vulnerabilities, clients may be facing – and how these vulnerabilities, if not identified and responded to appropriately, could lead to detrimental consequences for clients.

The statistics from the FCA’s Financial Lives survey show that more adults in the UK display at least one characteristic of vulnerability than those who don’t – at 53%. With many of these adults having multiple characteristics of vulnerability, it’s unsurprising that protecting the vulnerable is a key focus for the regulator and the industry.

If a client, new or old, appears anxious or stressed – why might this be? Have they no confidence or previous experience with financial services? Has their circumstance changed to substantially impact financial security? Are they perhaps facing something entirely different – a health concern, or deterioration in themselves or a loved one?

Familiarising ourselves with the four key drivers as identified by the FCA:

  1. Health,
  2. Life events,
  3. Resilience,
  4. Capability,

is the first step to ensuring we treat clients fairly and that we arm ourselves with the correct alternative solutions for each individual client.

Tony Wickenden, Financial Planning Week tip: Capital gains tax change. Will he? Won’t he? And where does it leave you?

As we approach 27 October and our second Budget of 2021, questions will inevitably emerge over the future of capital taxation. Apart from the frozen inheritance tax (IHT) thresholds and the frozen capital gains tax (CGT) exemption there has been very little change proposed. And yet both IHT and CGT have been reviewed and reported on (two reports for each tax) by the Office of Tax Simplification (OTS). The last of those reports, on ‘simplifying practical, technical and administrative issues’ related to CGT was published in May 2021, two months after the Spring Budget. It is CGT that we will examine in this bulletin. 

Ahead of that last Budget, on 3 March, many advisers received questions from clients concerned about the future of CGT and what, if any, advice should be considered and/or action be taken. A repeat of this pre-Budget pattern is likely – especially as no material changes to capital taxation were announced in March.

So, what is the advice and recommended action this time around? A tough question – but we’ll try to answer. First let’s consider some background and context:

  1. The proposals from the first and second OTS reports on CGT that gave rise to the greatest concerns were:

    a. Capital gains rates should be ‘aligned more closely with Income Tax’ but with a reintroduction of some form of inflationary relief so that only “real” gains are taxed and with a possible “rebasing” of acquisition value to an appropriate date  to help diminish possible “tax pain” for long held assets;
    b. A reduction in the annual exempt amount to ‘a true de minimis level …in the range between £2,000 and £4,000’;
    c. A review of Business Asset Disposal Relief (formerly entrepreneurs’ relief); and
    d. Removal of the tax-free re-basing of acquisition value on death for all chargeable assets.
  2. Total receipts for CGT in 2020/21 were £10.6bn – so not huge, but double the level of IHT for the same period.
  3. The numbers of individuals who paid CGT in 2019/20 were not large either- around 250,000. In addition, 18,000 trusts paid the tax.
  4. The Conservative Government is coming under strong pressure from the backbenches over the tax and national insurance (NIC) increases they have already proposed. Many in the party are keen that the Conservatives are clearly identified as the Party that stands for fiscal responsibility and low taxation, not obvious traits of their leader.

So, what might all of this mean for the likelihood of material CGT reform being introduced in the upcoming Budget? As the above context demonstrates there are plenty of “moving parts” and “contributory factors” to consider.

Here’s what we think supports CGT changes (pros) and also what makes change less likely (cons):


  1. The perception of fairness in selecting who bears the largest burden of tax increases is politically important. Those who pay CGT are likely to be the richer members of society with the ‘broadest shoulders’.
  2. Relatively few people pay CGT and so making the tax tougher and increasing the yield might not have a high political cost. 2019/20 data show that just 11,000 individuals accounted for two thirds of all taxable capital gains, with an average gain of about £3.8m.
  3. The current Chancellor specifically asked the OTS to review and report on CGT.
  4. Taxing capital gains as income is nothing new – we have “been there before” so to speak. It was generally the “way of it” up until 2008 and was last introduced by a Conservative Chancellor (Nigel Lawson). Taxing gains as income has also been a popular proposal from many think tanks for some years.
  5. If the yield from the tax were doubled by charging gains at closer to income tax rates, then an extra £10bn a year would be helpful.
  6. The likelihood that there will be no “one-off” or annual “wealth tax” or “covid recovery” tax maybe makes a more fundamental review of CGT (and IHT) more likely. It has the political benefit for the Chancellor of also appearing to be tax on wealth. CGT can be changed almost instantly (remember June 2010 – please see below) and legislation does not have to be built from scratch, as would be the case with a wealth tax.
  7. The Treasury Select Committee stated recently that there is a “compelling case for a review of capital taxation”.


  1. The concern over backbench and conservative voter “revolt/anger” which would be damaging for unity.
  2. The relatively low yield that the OTS-proposed CGT changes would generate.
  3. Behavioural factors would have a considerable impact on the extra tax raised. Gains only attract tax on disposals, so these may be deferred, and, for example, loans taken instead. The OTS noted that ‘alignment of Capital Gains Tax rates with Income Tax rates could theoretically raise an additional £14 billion a year …[but]… it is clear that nothing like this amount would be raised in practice, due to behavioural effects.’
  4. The lesson of additional rate tax would doubtless be exhumed.
  5. The additional yield (apart from the likely behavioural changes) is strongly linked to potentially volatile values – so inherently uncertain. For example, CGT receipts fell by nearly 70% between 2008/09 and 2009/10 in the wake of the financial crash.

Apart from the inherent uncertainty (foolhardiness even!) of predicting anything ahead of a Budget, where does this context and these pros and cons leave us? Well, call it sitting on the fence, but the matter seems very finely balanced. Too close to call even. On balance though, there is enough to lead to a conclusion that whilst change is not inevitable, it absolutely can’t be ruled out. In other words, it would be difficult, in all consciousness, to argue capital taxation will remain as it is. 

So, with that in mind, what if any, action should be considered ahead of the Budget?

Before considering that, though, could any change, say to tax capital gains as income, be implemented other than at the beginning of a new tax year, e.g. from midnight on 26 October? The better view is that it could: George Osborne increased the CGT rate by 10% for higher and additional rate taxpayers at midnight on Budget Day in June 2010. Would, there be a need for consultation? That is certainly possible, especially if radical capital tax reform incorporating CGT and IHT is the chosen way forward – don’t forget those OTS reports!

If that were the case then, even though the final shape of the tax would not be known, anti-forestalling provisions could be announced so that any changes are applied to certain transactions (most obviously disposals) after the date of the announced consultation.

It’s not easy is it?

So, against this unavoidable uncertainty, the one certainty is that change can’t be categorically and confidently ruled out.

So, what action then? Should there be any action? 

Now it gets tricky!

There are “knowns” and there are “unknowns” in relation to the consequences of both action and inaction.

Let’s deal with an easy one first. In relation to a possible removing of “rebasing” on death, it’s unlikely that we are going to see deliberate pre-Budget action (i.e. deaths!) to “forestall” this process and trigger a pre-Budget rebasing!

So, how about pre-Budget disposals to “bank” a gain taxed at 10% or 20%?

That’s the dilemma some individuals found themselves in ahead of the last Budget.

The stronger the perceived likelihood of taxing capital gains as income, and the bigger the unrealised gain, the more appealing a pre-Budget realisation would seem. And there’s the rub. There is no certainty and so “perception” and the nature of the individual will be the key drivers. An optimist or a pessimist? No sane adviser could give a formal recommendation. You can only state the facts (please see above). The “win” if the feared changes come to pass could be material if the gains realised are significant – a potential halving of the tax. If you felt it right to divest on economic, commercial, investment grounds (i.e. you were going to do it anyway) then that will absolutely be the likely way you will go. The main reason for the disposal decision would not be tax-motivated, even if it may yield a tax advantage. In making the decision to disinvest on this basis you will have factored in the tax cost based on the current tax rates. So, two absolute “knowns”. You “know” you want to divest on commercial/investment grounds and you “know” and accept the tax consequences under the current rules. And you may secure a supplementary benefit by divesting and realising a gain before the rates go up.

Where the only reason for considering divestment is the fear of a future tax increase and the “chance” of a “tax win” then you also have to factor in the cost. The “unknown” benefit and the “known” cost. In relation to the latter you have the commercial cost of sale and reinvestment. It is, however, more than arguable that the current “bed and breakfast” anti-avoidance provisions would appear to be capable (as the legislation stands) of getting you “out of a hole” by repurchase within 30 days, so the sale is identified with the recent purchase, minimising the gain or creating a small loss. Interesting.

And then there is the tax cost at the current rates payable in January 2023 (assuming we are not talking about residential property). Harry Callaghan springs to mind. “Do you feel lucky …punk?” Against the knowns and unknowns the decision will be subjective and substantially founded on FOMO (fear of missing out) – one way or another. The adviser can only clarify the context (based on facts) and give the client all they need to make the decision. Of course, if any further “hard” information on the likelihood of change becomes available ahead of the Budget this will need to be factored in. Don’t hold your breath on that though. Leaks have been frequent but not dependable ahead of recent Budgets.

Banking a gain subject to 18% or 28% tax – which primarily applies to residential property – ahead of 27 October, is largely theoretical unless the sales process is already underway. One point to remember in such an instance is that it is generally the exchange date, not the completion date, which determines when the disposal occurs for CGT purposes.

And, to close, on Business Asset Disposal Relief, as for ordinary chargeable assets, if you are going to make a disposal anyway, on commercial/economic grounds and if it’s logistically possible, absolutely complete before the Budget. If you are not in this “advanced” position then manufacturing a solely “tax fear” motivated disposal is probably not practically possible anyway. As for complex contingent disposals, the 2020 Budget provided a warning in the anti-forestalling measures that accompanied the rebranding of entrepreneurs’ relief.

So, there we are. As many of the key facts as we could recall and some thoughts on the thought process that could be adopted before taking or refraining from taking any pre-Budget action.

We hope you found it of use.

Niki Patel, Financial Planning Week tip: The importance of writing and reviewing your will

Historic statistics have shown that a large proportion of the UK population do not have a will, whether this is just because it’s something they have just not got round to doing or whether they find it a sensitive subject. Ensuring that clients have a will which caters for their wishes is really important. In this bulletin we look at some of the main reasons as to why someone should write a will and also ensure the importance of reviewing it if their circumstances change.

Protecting assets

One of the most important reasons for writing a will is to ensure that assets pass to the correct people on death. If someone dies intestate, they risk letting the law decide who should inherit their assets which could be very different from their actual wishes. Even though the intestacy rules are designed to protect the individual’s family, this can still cause several problems especially for those who are not married or in a civil partnership. This is because partners have no automatic rights under the law of England and Wales. Equally for those who are separated but not divorced, their spouse or civil partner would inherit part of the estate on intestacy. Further if there are no close relatives, assets could pass to distant relatives whom the deceased had no intention of leaving assets to, or, if there are no relatives, assets could pass to the Crown!

Tax planning

Prior to the introduction of the transferable nil rate band, in many cases the nil rate band was often wasted on first death by leaving assets to a surviving spouse/civil partner which would otherwise pass exempt. For years many couples relied on the transferable nil rate band rules to ensure use of the nil rate band on second death. That said, given that the nil rate band has remained at £325,000 since 2009/10 and is expected to do so until 2025/26, for some making use of the nil rate band on first death ought to be considered as this reduces the value of the estate on second death which can be beneficial for the purposes of making use of the residence nil rate band and also any growth will be outside of the estate of the second person to die.

The will can therefore be drafted to maximise inheritance tax savings. And, for those who wish to leave assets to charity, if 10% or more of the net chargeable estate is left to charity, the rate of inheritance tax payable on the taxable estate is reduced to 36% instead of 40%.

Ensuring that the will is legally valid

Broadly, for a will to be valid it must be written by an adult, so aged 18 or over and of sound mind, it must be in writing and signed and dated in the presence of two adult independent witnesses. So, it cannot be witnessed by anyone who may be able to benefit under the terms of the will. Currently, due to the pandemic it is possible to remotely witness a will and this will be possible until at least January 2022.

While there is no requirement for a will to be written by a solicitor/legal adviser it is often recommended because they can ensure that it is properly worded to reflect the individual’s wishes and also ensure that it is written in a way to maximise tax savings.

Other considerations

Aside from specifying who should benefit/inherit from any assets, it is important to name who should act as executors. The executors are responsible for dealing with the administration of the estate. This means that they have to complete the inheritance tax account, pay any inheritance tax that may be due and apply for probate, if required. Upon grant they then have the legal right to deal with the assets, so once any debts, taxes, expenses, etc. are paid they can then pass assets on to those who are entitled to benefit under the terms of the will.

If trusts have been created in the will, then, usually, the executors will also be named as the trustees and so will be required to manage and deal with the assets in accordance with the terms of the trust.

In cases where there are minor children, a will can also be useful to name any guardians that should look after the children upon death of the parent(s), otherwise the family courts will decide where the children should go. Equally, a will ensures that such children will be properly looked after, as funds can be set aside for their benefit – usually by including a trust to that effect in the will.

It is also advisable to consider what should happen to any pets, so whether a family member would be prepared to look after them or whether they would go to a particular shelter/home.

A will can also include other wishes, for example what kind of funeral the individual would like, whether they wish to be buried or cremated, whether they would like certain songs played or certain readings read.

Finally, with the popularity of social media, including email, it is advisable to include what should happen to any digital assets within the will.

Reviewing a will

It is really important to review a will whenever circumstances change, for example, if the individual gets married, divorced, becomes a parent or receives an inheritance.

If they already have a will in place and get married or enter into a civil partnership, the will is automatically revoked and so a new will would need to be made. The same rule, however, does not apply if they get divorced or their civil partnership is dissolved. In that case, anything left to the ex-spouse/ex-civil partner in the will would be dealt with as if they had died on the date that the marriage/civil partnership legally ended. This means that any gifts/assets which may have been left to the ex-spouse/ex-civil partner will no longer pass to them, although the provisions in the rest of the will would usually be valid and so could cause unintended consequences where the individual’s circumstances have changed and they wish to redirect assets to other people. Whatever the ex-spouse/ex-civil partner was set to inherit would then be passed on to the next beneficiary who is entitled to it, in line with the terms of the will. If everything had been left to the ex-spouse/ex-civil partner, with no other beneficiaries named, then the estate would be dealt with under the intestacy rules. Therefore, if a will is not updated to reflect a divorce or the dissolution of a civil partnership, the estate might be divided up differently to how it was intended. This could mean that new partners or dependants aren’t provided for.

In terms of actually making changes to a will, this can either be done by codicil – a document changing certain provisions in the will or by writing a ‘new’ will and revoking the ‘old’ will. Ideally, consideration should be given to including a revocation clause in the ‘new’ will setting out that it replaces any earlier will that had been written.


Hopefully, this provides an overview of some of the aspects that ought to be considered in relation to writing and reviewing a will, but, most importantly, clients ought to be aware that it makes it easier for family and friends to sort everything out on death. Without a will the process can be more stressful and time consuming for their loved ones.

Helen O’Hagan, Financial Planning Week tip: Multiple trust planning

When your client creates a discretionary trust it will have its own IHT nil rate band (NRB) which will be used throughout the lifetime of the trust. This is used to calculate the 10 yearly charge commonly called the periodic charge.

The available NRB is calculated at the creation of the trust by looking back seven years and adding up any previous chargeable lifetime transfers (CLTs) that the client made before this new one. These are deducted from the NRB available at the 10 year point. This means that, the NRB for the client’s new trust is the NRB at year 10 less those previous CLT’s.

Tax saving

By creating several trusts over several days your clients are able to take advantage of multiple NRBs, as shown in the following example:

Agnes has just started her IHT planning and this is her first set of gifts. She creates three discretionary gift trusts as follows:

 DateValue of CLT
Trust 1August£150,000
Trust 2September£100,000
Trust 3October£75,000

When the time comes for the calculation of the periodic charge, Agnes’ trusts will have the following nil rate bands to use at the 10 year point:

NRB for periodic chargeLess value of previous CLT
Trust 1NRB at 10 year point£0
Trust 2NRB at 10 year point-£150,000
Trust 3NRB at 10 year point-£250,000

Let us assume the trust funds grow as follows:

 Value of fund at 10 year point
Trust 1£300,000
Trust 2£200,000
Trust 3£150,000

And if the NRB increases to £375,000 at the 10 year point, the periodic charge for Agnes’ trusts will be as follows:

 NRB for trustValue of trustTaxable at 6%
Trust 1£375,000£300,000£0
Trust 2£375,000 – £150,000 = £225,000£200,000£0
Trust 3£375,000 – £150,000 – £100,000 = £125,000£150,000£25,000 x 6% = £1,500

Trust 1 has the full NRB to use at the 10 year point, and, as the value of the trust fund is below this, there is no tax to pay.

Trust 2 has the NRB at the 10 year point less the previous CLT of £150,000, which gives £225,000 of NRB to use against the trust, and, again, as the value of the trust fund is below this, there is no tax to pay.

Trust 3 has the NRB at the 10 year point less the two previous CLTs of £150,000 and £100,000, which gives £125,000 of NRB to use. However, as the trust fund is £150,000, which exceeds this by £25,000, this results in a tax charge of £1,500.

If we compare this with the position if Agnes had just set up 1 discretionary trust the calculation of the periodic charge would be:

 NRB for trustValue of trustTaxable at 6%
Trust 1£375,000£650,000£275,000 x 6% = £16,500

As you can see, creating multiple trusts for your clients can make tax savings for them at the 10 year anniversary for the calculation of the periodic charge.

Beware of the related settlements rules

Under the statutory definition of “related settlements”, contained in section 62 Inheritance Tax Act 1984, related settlements are treated as a single settlement and so would not each have a separate NRB.

For two or more trusts to be related settlements, the settlor must be the same in each case and the trusts must have commenced on the same day.

Make sure when setting up multiple trusts for clients that they are set up on different days and the investment bonds start on different days.

Same day additions

There were anti avoidance measures introduced, which created a new section 62A, which states that trusts will be treated as related if  the value of property in each  trust is increased by a transfer of value on the same day, for example, if assets are added to them on the same day.

When using multiple trusts, your clients ought to set them up on separate dates and ensure that funds transferred into the trusts are paid on different days, on set up and when topping up the trust.


Don’t forget that, if you are setting up loan trusts and gift trusts for your clients at the same time, there is no transfer of value under a loan trust, so set this up first. This will potentially give the client 100% of the NRB for the loan trust and also 100% of the NRB for the gift trust to use at the periodic charge point.

If your clients are using loan trusts in their IHT planning consideration should be given to setting up multiple smaller trusts. This will not only help with the periodic charge point giving multiple NRBs to use, it also gives the client flexibility when it comes to waiving the loans. Under certain provider’s loan plans you can only waive all of the loan. There is no facility to waive part of the loan. If you have multiple smaller plans it gives clients the ability to waive each loan at different times, keeping some if needed for future use.

One last point to note is that, with the extension of the Trust Registration Service, each of the trusts will have to be separately registered with HMRC.