The UK Government’s most recent Budget saw fewer changes to Capital Taxes than might have been expected but there are still some points to note for taxpayers in Scotland as well as the rest of the UK.
The Inheritance Tax Nil Rate Band has been frozen at £325,000 for the twelfth year in a row. The Residence Nil Rate Band, an additional relief worth up to £175,000 on the basis a taxpayer is passing his or her main home to direct descendants, has also been frozen. In both cases the reliefs are to remain unchanged until April 2026.
The UK Government’s headline when the Residence Nil Rate Band was announced was that a married couple would eventually be able to pass on £1 million free of Inheritance Tax. That threshold was reached in April 2020 but by then freezing both the Nil Rate Band and Residence Nil Rate Band for the next 5 years, the government is pulling more estates into the Inheritance Tax net. This being the case, lifetime planning to mitigate an Inheritance Tax liability will become more attractive to individuals whose estates might breach the current threshold.
There is now further divergence in the Scottish and UK Governments’ respective approaches to land taxes. The Chancellor announced that the value on which the purchaser of a residential property does not pay Stamp Duty Land Tax will remain at £500,000 until 30 June 2021. It will then reduce to £250,000 from 1 July 2021 to 30 September 2021. A return to the standard nil rate band of £125,000 is scheduled for 1 October 2021. These figures apply to England and Northern Ireland only.
By contrast, the Scottish Finance Minister has confirmed that there will be no extension of the increased Land and Buildings Transaction Tax (LBTT) threshold of £250,000. The LBTT threshold was raised from £145,000 to £250,000 on 15 July 2020. The temporary increase is due to end on 31st March 2021 at which point it will return to £145,000.
Finally, towards the end of 2020 the Office of Tax Simplification released a report recommending numerous changes to the Capital Gain Tax (CGT) regime such as aligning CGT rates more closely with income tax rates and reducing the Annual Exempt Amount. More detail on the report can be found here. Whilst no such changes were announced in the recent Budget, the UK Government has confirmed it intends to announce some consultations separately from the Budget, and will publish a Command Paper, ‘Tax policies and consultations (Spring 2021)’ on 23 March 2021.