Relief for savers as “tax day” sees government announce no significant tax reforms

May 08, 2021

Late last year, the government announced that a range of documents and consultations on future tax policies would be released after the Budget.

Dubbed “tax day”, these announcements came later than usual this year to allow for greater scrutiny after the significant number of changes Rishi Sunak announced in his Budget.

Many experts speculated that savers would see changes to pensions, Capital Gains Tax, and Inheritance Tax relief, with reforms designed to help the government increase its tax take to pay for pandemic support.

However, there’s great news for savers as most of the anticipated reforms were ignored. Here’s what “tax day” means for you.

No change to pension tax relief

One of the most hotly anticipated reforms was to pension tax relief. Many had expected the government to cut higher- and additional-rate tax relief on pensions, perhaps to the basic rate of tax or to a fixed level of 25% or 30%.

However, pension tax relief has escaped reform – at least for the time being.

This means that, if you’re a higher- or additional-rate taxpayer, you can continue to claim additional tax relief on your pension contributions through your self-assessment tax return.

The “tax day” documents also seem to ignore the issue of low-paid workers missing out on pension tax relief because of the “net pay” system.

Former pensions minister, Steve Webb, says: “In a blizzard of Treasury documents on tax, it is pretty shocking that they have failed to address a longstanding tax injustice affecting around 1.5 million lower paid workers. The Conservative manifesto promised to tackle this issue, whereby large numbers of workers miss out on tax relief through no fault of their own.”

The various consultations published only touch on pensions in a technical capacity. Rather than reforming tax relief, the Treasury has instead focused on technical updates on “scheme pays” facilities for public service schemes and the tax treatment of defined benefit (DB) superfunds.

A reduction in paperwork if you’re dealing with Inheritance Tax

As part of the government’s aim to build “a trusted, modern tax administration system”, the Treasury has adopted a series of recommendations by the Office of Tax Simplification when it comes to the reporting of Inheritance Tax.

Reporting regulations will be simplified later this year so that, from 1 January 2022, more than 90% of non-taxpaying estates each year will no longer have to complete Inheritance Tax forms for deaths when probate or confirmation is required. You’ll also be able to provide an Inheritance Tax return without a physical signature.

Apart from these admin changes, there were no other reforms to Inheritance Tax. The seven-year gift rule remains, as do the nil-rate band at £325,000 and residence nil-rate band at £175,000. The chancellor recently froze these thresholds until 2026.

Capital Gains Tax rates and exemptions remain

Ahead of “tax day” there was also plenty of speculation that the government would seek to reform Capital Gains Tax (CGT). Many expected the annual exemption to be cut, or for the rates of CGT to be aligned with Income Tax rates.

However, CGT remains untouched, and so the present annual exemption of £12,300 applies. This exemption allows you to make gains of up to £12,300 in a tax year before you pay any CGT – although do remember that the chancellor froze this exemption at the present level until 2026 in his recent Budget.

Despite a 2020 report from the Office for Tax Simplification (OTS) saying that CGT intake could be doubled to £14 billion if it was brought in line with Income Tax, CGT rates also remain unchanged:

  • Basic-rate taxpayers – 10% on gains above the exemption (18% on residential property)
  • Higher- and additional-rate taxpayers – 20% on gains above the exemption (28% on residential property).

Again, the absence of reform is good news if you’re thinking of disposing of an asset and making a gain as neither the exemption nor the rates of tax have changed.

Other minor reforms announced on “tax day”

Alongside a range of highly technical reforms and consultations concerning VAT and other taxes, other measures announced include:

  • The government is publishing a consultation on raising standards in the tax advice market. This will seek views on the definition of tax advice and a requirement to make professional indemnity insurance compulsory for all tax advisers. The aim is to improve tax advice and providing taxpayers with better access to redress where they have received bad advice.
  • The government intends to legislate later this year to extend “Making Tax Digital” (MTD) to Income Tax Self-Assessment from April 2023.
  • There will be a consultation to consider how Air Passenger Duty (APD) could support regional connectivity, alongside the commitment to reach net-zero emissions by 2050. This consultation will seek views on the government’s initial position that the effective rate of APD on domestic flights should be reduced alongside a potential increase to the number of distance bands in order to align the tax more closely with the government’s environmental objectives.
  • An announcement that the government will legislate to tighten tax rules for second property owners meaning they can only register for business rates if their properties are genuine holiday lets.

Get in touch

If you want to know more about what the “tax day” announcements mean for you, or want to chat to a professional about mitigating your tax liability, please get in touch.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.

What our clients say

The people we help are at the heart of what we do. Here are some of their testimonials.

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

Colin Dunstall, Donaldson Dunstall Solicitors -

A client since 2015

I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

Having recently transferred my financial management to Stratton Wealth Management, I have been extremely impressed with the highly professional service I have received. I feel I have been fully involved in all decision making, and the company's highly skilled advisers have shown commitment and patience in any dealings I have had with them. I have also always found them to be easily accessible for any discussion I may require.

Denise Thornton -

A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

Lee and Claire Parkinson -

Clients since 2016

Darius deals with my family’s finances and is a very trusted adviser. We meet a number of times a year, but I know I can call him any time if I have any questions. He is proactive, helpful and friendly!

Jonathan Dennis -

A client since 2019

Darius has been our adviser for a number of years, and when he told us he was starting his own firm, we had no hesitation in moving with him. We had a number of areas that we needed help with, including the complexities around an employee share scheme, investments for us and our new child, in addition to our retirement planning. Darius has continually provided us with a first-rate level of service and we would highly recommend Stratton.

Eamon and Holly O’Hara -

Clients since 2017

Contact us

If you’ve got questions or would like to arrange a free initial consultation, please get in touch.

    How would you like to be contacted?*