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Chancellor set to maintain personal tax rates despite windfall, experts predict

The Treasury has received record tax receipts across income, capital gains and inheritance taxes over the past year but tax experts warned this was unlikely to prompt cuts in personal tax rates in next month’s Budget.

Self-assessed income tax receipts reached £21.9bn in January, jumping one-third on the previous year, boosted by frozen thresholds, inflation and high employment numbers.

Meanwhile capital gains tax (CGT) payments hit £13.2bn in January — up 24 per cent from the same month in 2022 — as investors hurried to lock in gains ahead of speculation about tax rate rises last spring. 

Christopher Thorpe, technical officer at the Chartered Institute of Taxation, said the higher than expected tax receipts would give Jeremy Hunt, chancellor, “a bit more money to play with” in next month’s Budget, but added: “We’re still not expecting to see significant net tax cuts given the overall fiscal picture.”

Nimesh Shah, chief executive of accounting firm Blick Rothenberg, said Hunt and Rishi Sunak, prime minister, would maintain a high tax burden as a way of tempering inflation.

“The key target appears to be reducing inflation and any suggestion of reducing taxes may derail that approach,” he said.

In his Autumn Statement in November, Hunt announced that the threshold at which people start to pay income tax would be frozen at £12,570 until at least April 2028. The threshold at which the 45p income tax rate becomes payable will fall from £150,000 to £125,140 in April.

The CGT annual exemption, meanwhile, is due to be halved from a current level of £12,300 to £6,000 in April and again to £3,000 in 2024.

“I don’t think the chancellor will reverse any of the halving of the allowances . . . or change the rates of income tax,” said Tim Stovold, head of tax at accounting firm Moore Kingston Smith.

“If he had any ability to do something in this area, he should address the criticism around fiscal drag and increase some of the income tax thresholds that have been frozen,” he added.

The surge in CGT receipts over the past 12 months, which hit £18bn over the year, was boosted by rising sales by buy-to-let landlords amid higher interest rates and fears of a cooling housing market.

While CGT for most assets including shares and crypto is paid annually in self assessment tax returns, tax on qualifying property sales is reported and paid within 90 days of the sale.

Tax experts said the planned CGT changes would boost receipts in the current tax year as investors crystallise gains to make the most of the more generous tax-free allowance.

But Shah added that the current level of CGT generated is “unsustainable” and that he “wouldn’t be surprised to see receipts fall, despite the reduction in the CGT annual exemption” as global stock markets have been weaker and M&A activity has dried up.

Government figures out today also show a surge in inheritance tax receipts, which hit £5.9bn between April 2022 and January 2023, a 15 per cent rise compared with the previous year.

On death, inheritance tax is paid at 40 per cent on the value of the estate over the nil-rate band — the level at which no tax is paid — which has been set at £325,000 since 2009, and £650,000 for a couple.

In the Autumn Statement, Hunt said the nil-rate band would be frozen until 2027-28.

Andrew Tully, technical director at insurer Canada Life, said: “The belief that IHT is strictly for the affluent no longer applies.”

He added that setting up a trust, making full use of gift allowances which allow you to pass on money to family while reducing your estate and leaving a legacy to charity are ways of reducing an inheritance tax bill.

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