Video report by ITV News Political Correspondent Carl Dinnen
Rishi Sunak has paved the way for tax rises in Wednesday’s Budget, saying he wants to “level with people” about the challenges caused the coronavirus pandemic.
Here are some of the reported tax rises the Chancellor is considering - and how they might affect you.
Mr Sunak is said to be weighing up a move to raise income tax receipts by £6bn.
The Conservatives’ election promise included a pledge not to raise national insurance, income tax or VAT, but this does not include the level at which people start paying tax.
Reports suggest that the personal allowance, currently £12,500, will be freezed for three years. The threshold of earnings before paying into the higher rate of income tax at £50,000 could also be freezed for the same period.
This could place around 1.6 million people in the higher tax bracket by the next election.
The personal tax-free allowance was due to rise to £12,562 this year, saving a family £12.50 on tax. However this now looks in doubt.
This would allow the Conservatives to not renege on their 2019 manifesto pledge, but the imaginative tactic is likely to anger some Tory MPs.
Mr Sunak is reportedly weighing up an increase in corporation tax, which businesses pay on their profits.
Currently, the UK has the lowest corporation tax out of the G7 countries at just 19%, but reports suggest this could raise to 25% over the course of this parliament.
But Business Secretary Kwasi Kwarteng suggested when speaking to ITV News that corporation tax may not be increased in this year’s Budget.
He told ITV News: "I'm not sure that's something that will necessarily happen tomorrow - clearly businesses have been supported a great deal and so there's an argument that says maybe in the future they can be expected to support/contribute to the tax revenue.
"That's a debate I think for another day."
A change in tax rates would reverse cuts made under former Chancellor George Osborne, which led corporation tax to fall from 28% to 19%.
There is speculation the chancellor could look at increasing Capital Gains Tax, although nothing has been confirmed.
The levy is paid on the profit when you sell an asset which has increased in value. It is the gain which you have made which is taxed, not the amount you receive.
For example, if you bought a painting for £5,000 and sold it later for £25,000, it means you've made a gain of £20,000.
You are taxed on this if you sell the item, give it as a gift, are receiving compensation for something or swapping it for something else.
Britons currently have a tax free allowance of £12,300 per year, or £6,150 for trusts, with some assets not subject to any taxation.
Mr Sunak asked the Office for Tax Simplification (OTS) to review capital gains tax last year.
The OTS released its review in November 2020 and suggested the rate could be doubled from the current 10% basic rate to 20%. For high earners, this could increase from 20% to 40%.
The self-employed could also face tax hikes in the form of national insurance contributions increasing.
The Sunday Telegraph reports that the Treasury is set to justify a raise in NIC by arguing the self-employed also benefitted from government aid during the pandemic.
Inheritance tax (IHT)
A person can pass on £325,000 of their wealth tax-free to their loved ones.
You can give everything to your spouse tax free, including passing over the £325,000 tax-free allowance. Therefore on the second death, that person could pass on £650,000 to anyone they want.
If you live in your home at the time of death and give it away to your children (including adopted, foster or stepchildren) or grandchildren, you're allowed an extra £175,000 to pass onto your loved ones tax free. Again, your spouse can inherit this, so upon the second death, they could pass £1m tax-free.
Currently inheritance tax is paid at 40% over this value.
Any gifts you make seven years before your death are also taxable under the current laws, however there are exceptions to this, such as gift made to someone who is getting married, or small gifts of up to £250. You also have a £3,000 annual exemption which is not taxable.
Currently, IHT raises around £5.4bn in taxation every year for the Treasury.
What time is the Budget statement?
Rishi Sunak is due to make his Budget statement at 12.30 on Wednesday 3 March.
You can watch live coverage of the Budget in an ITV News special programme on Wednesday from 12.15 on ITV and itv.com/news.