The Government has responded to the Tax After Coronavirus inquiry and report, explaining some changes were already made in the Budget. This included freezes to the Inheritance Tax threshold and Pensions Lifetime Allowance, announced by Chancellor of the Exchequer Rishi Sunak in March this year.
The Government has also explained why other tax changes may not be a priority.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, commented on the Treasury Committee’s report titled Tax after coronavirus: the Government’s response.
She said: “The Government’s reply to the ‘Tax after Coronavirus’ report was an emphatic ‘not now!’
“Some potential tax changes have been taken off the table entirely, while others have been pushed very firmly down to the other end of it.
“While the economy is still recovering, and we’re still uncertain whether new variants will divert the path out of the crisis, the government isn’t going to make any sudden moves.
“Nobody is going to touch pensions tax relief, capital gains tax, inheritance tax or stamp duty until we’re on a much firmer footing.”
However, when this time comes, it seems there won’t be a rush to put tax changes into force.
“Even once it’s certain the recovery is firmly established, the government has indicated it’s in no hurry to make tax changes,” Ms Coles said.
“And while Budgets always have the potential to hold nasty surprises, you have to ask whether any government would announce a range of exciting new taxes just before going to the polls in 2023.
“When we’re back on track, the Government hinted it’ll sort out the difference in tax treatment between the pensions of low earners in ‘net pay’ arrangements and those enrolled into group personal pensions.
“It played down the possibility of changes to pensions tax relief more broadly, highlighting that when it consulted on it in 2015, there was no real consensus.
“When it comes to pensions, it’s always welcome news when the Government chooses not to tinker with the rules.
“However, it means you can’t rely on a policy change to close any gaps in your pension savings, so it’s up to us all to take stock of our own pension savings, and make sure we’re on track for the retirement we deserve.
“And while higher rate taxpayers remain the biggest beneficiaries of the current pension rules, some basic taxpayers may be better off redirecting extra contributions to their Lifetime ISA.”
However, changes could still be ahead when it comes to Capital Gains Tax (GCT) and Inheritance Tax (IHT).
Ms Coles explained: “This doesn’t mean Capital Gains Tax or Inheritance Tax are off the table entirely, because the Government highlighted that it was still keen to eliminate features of the tax system that distort behaviour.
“It means we shouldn’t expect changes imminently, but we should be taking advantage of the allowances that suit our needs while we can, including annual capital gains allowances and gifting allowances for IHT.”
Becky O’Connor, Head of Pensions and Savings, interactive investor, also commented on the recent report, saying: “The tone of the Government’s response to recommendations for major tax reform was, ‘We’re on the case’.
“The response highlights the measures the Treasury has already taken to support the public finances, including freezing tax thresholds such as income tax and the Lifetime Allowance for pensions, which it said were ‘progressive and fair’ measures.
“It also states that recovery rather than reform is its main priority.
“On pension tax relief, the response suggests that no sweeping changes are imminent but that the possibility of reform would be kept under review.
“The Government stated that even small changes could have a ‘profound’ impact, so radical changes to pension tax relief would require ‘careful consideration’.
“For people planning how to invest for retirement, no news is good news here – for now. Stability of pension policies has been sorely lacking in recent years, so in some respects, further tinkering is the last thing anyone wants.
“However, reform is still on the table – and it’s important for the Government to consider whether pension tax relief is incentivising those who need most encouragement.
“The response highlighted that the Government is due to report on its consultation on tax relief for low earners and how to address the issue of some workers who are in ‘net pay’ schemes missing out on tax relief because they don’t pay tax.
“This looks like the one area of pension tax relief the Government might do something about reasonably imminently.”