🔔 What will the Budget deliver?

The 2018 Budget will be delivered on Monday 29th October, the last one before Brexit.

Chancellor Philip Hammond said he will deliver “the Government’s plan to build a stronger, more prosperous economy” and reportedly said that “nothing is off the table” - especially since he has some tough challenges, including Theresa May’s pledge to boost the NHS budget by more than £20bn a year by 2023.

So, what is the media predicting? Nothing for savers unfortunately, but here are some of the things we know and what we might expect to see.

Inheritance Tax (IHT) gifting rules and reliefs

IHT rules are very complex and the Government commissioned the Office for Tax Simplification to review it – the findings of this review are due to published around now. It is possible that simplifying the rules on annual gifting could be on the cards and potentially this would mean an increase to the IHT allowance.

A review of Business Relief to limit availability of Inheritance Tax relief to individuals closely involved in the day-to-day operation of the business, is also under consideration. This is counter-productive to the Government’s goal to increase investment in new start-ups and small business ventures but could provide valuable tax savings to HMRC due to the accompanying reliefs granted to individuals obtaining Business Relief through investment into Enterprise Investment Schemes and Venture Capital Trusts. 

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Pension tax relief cuts

There continues to be a lot of focus on pension tax relief, as this costs the Treasury £39bn a year. So, according to The Daily Telegraph, it’s likely that the tax relief will be amended in one of two ways – either cutting the annual allowance from the current level of £40,000 or lowering the rate of relief, perhaps replacing the current tiered relief (20% tax relief for basic rate taxpayers, 40% for higher rate taxpayers etc) with a flat rate which applies to all.

And as our colleagues at The Private Office remark, reducing the annual allowance or the rate at which tax relief is granted is likely to have broader appeal to the majority and be more palatable than the abolition of the tax-free pension commencement lump sum or further reductions to the Lifetime Allowance.

National Insurance Contributions (NICs) for working pensioners

The Institute for Fiscal Studies, among others, has suggested that pensioners should start to pay NICs on their income – at the moment they are exempt. It is unlikely that we will see this happen in the current Parliament, as this would be viewed by many as another attempt to break manifesto promises (do you remember the furore over the planned increase to Class 4 contributions in Philip Hammond’s first Budget address?).

Income tax cut promise could be scrapped

Apparently 60% of tax revenues comes from income and national insurance contributions, so this could be a prime target for the Chancellor. According to a source talking to the Daily Mail, Hammond could ignore the party manifesto promise to raise the starting threshold for basic rate taxpayers to £12,500 by 2020 and the higher rate tax threshold to £50,000 by the same date. Freezing income tax thresholds could raise £2billion a year.

VAT change for small businesses

The Chancellor could also be considering a “VAT raid on small businesses”, again according to the Daily Mail.

At the moment, companies only have to charge VAT if their turnover is greater than £85,000 a year. If that is reduced, and the figure being mooted is £43,000, this too could raise another £1.5bn. But an additional half a million small businesses could be saddled with the VAT burden as a result.

Fuel duty freeze

Not a prediction, as this was confirmed by the Prime Minister at the Conservative Party Conference earlier this month. This will be the ninth year in a row that fuel duty has been frozen but according to The Guardian, The Institute for Fiscal Studies think tank estimates that the policy costs the Treasury around £9bn a year.

Stamp duty surcharge for overseas home buyers

The Prime Minister also announced another change to stamp duty. It would be a new 3% stamp duty surcharge, this time affecting overseas buyer who are not tax resident in Britain.

We will of course, in conjunction with our sister company The Private Office, produce a budget summary after the 29th October.

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