Let’s look at a few things that have been conveniently forgotten about the rumoured budget changes…
Of course, at the time of writing, the March 2021 budget hasn’t actually been announced, but there has been enough discussion and enough supposed leaks, rumours, and discussion, that it’s hot on everybody’s minds!
Equalising National Insurance for the self employed.
The rumour is that the chancellor intends to increase self employed national insurance to the same rate as employed people.
At first glance, it sounds fair. Shouldn’t the self employed pay the same rate? BUT the self employed do get the same benefits as the employed. That’s the reason for the difference in the first place. They don’t get
- Redundancy pay
- Discrimination protection
Job seekers allowance
I admit, many self employed people received the Self Employment Income Support Scheme during the pandemic. But, these were exceptional circumstances, where the government ordered them to close!
There shouldn’t be a permanent equalisation of national insurance. There are still benefits that the self employed don’t receive.
Aligning CGT rates with Income Tax
The rumour is that CGT will in future be paid at income tax rates.
They used to be at these rates, so it seems okay to go to the that, right?
We need to look back to the old rules to really understand this.
When CGT rates were the same as Income tax rates, relief was available to all. This was called ‘indexation allowance’. It reduced gains to ensure that gains, as a result of inflation were not taxed.
In 1998, the indexation allowance was abolished for individuals. The quid pro quo has replaced with taper relief, another way of reducing the impact of inflation on capital gains.
Then, in 2008 the taper relief was removed. But the CGT rates reduced to compensate for it, down to similar levels that they are now.
Now they want to put the rates back up, they’ve forgotten that the reduced rate was to compensate for the loss of indexation allowance and taper relief!
Scrapping or reducing pension relief
This has been in the list of rumours for years. Reducing the supposed very valuable relief available for those saving in a pension.
Paying income tax when you draw out your pension (well, 75% of it) is forgotten. So you must get tax relief when you invest; otherwise, you’re being taxed again on money that you’ve already paid tax on when you draw it out.
If there’s no tax relief when you invest in your pension, then there should be no tax when you draw it.