With taxes rising, and the UK economy so far side-stepping a full recession, the Spring Budget on Wednesday 15 March should be an interesting event. Peter Webb, our Head of Tax Advisory, shares some thoughts about what might be announced.
The British economy has hovered around recession for several months. In economic terms the reality is that growth in the UK has shrunk, but recession itself is yet to officially bite. As we skirt around the edges of downturn, what’s very clear is that times are tough, strikes in the public sector continue and inflation remains high. The focus of this next Budget will be on how the government intends to deliver on its growth plans, whilst helping businesses and families stay the course over this tricky next period.
So, what are the likely announcements which Jeremy Hunt, the UK Chancellor, might share later this month?
It’s likely Corporation Tax could be a key theme. Pre-announcing future cuts here – towards Mr Hunt’s stated goal of giving the UK “the most competitive tax regime of any major country” – may take the form of a roadmap for the next five years. This would help to restore much needed certainty to business planning decisions.
The State Pension age is due to rise from 66 to 67 by 2028, and then to 68 between 2044 and 2046. However, the government is considering accelerating that change even earlier, with some reports citing a rise in State Pension age to 68 by 2034. There could also be an increase in the age at which personal pensions can first be accessed – the current age is 55 (rising to 57 from 6 April 2028) – but this may change further in line with rising life expectancies.
While the tax advantages of Individual Savings Accounts (ISAs) are useful in encouraging personal investment, many wealthy investors have now built-up significant amounts despite the annual cap on contributions. Introducing an overall cap, similar to the lifetime limit for pension funds, may now be a sensible move.
The current Inheritance Tax framework has long been criticised for being too complex, so some reform and simplification here could be announced. This might include taking away or limiting Business Relief or Agricultural Property Relief – two tools which reduce Inheritance Tax. There could also be changes to various smaller exemptions (for example gifts on marriage) with the introduction of a simpler annual gifting allowance.
It remains to be seen just how significant a Budget this Spring’s announcements will create. But there is a small glimmer of hope – it’s been leaked that the Chancellor intends to continue the freeze in fuel duty rates to help reduce inflation.
We already know from the Autumn Statement tax allowances will be frozen for many years and tax-free allowances for dividends and tax free capital gains are going to be reduced significantly over the next couple of years. Given the state of the country’s finances and the outlook for the economy Jeremy Hunt has little scope to bring taxpayers any good news in his next Budget Statement. It would be sensible to prepare for the worst – the best to expect is likely to be a few years’ down the line.
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