Chancellor Jeremy Hunt will present his Spring Budget on Wednesday 6th March.
And it’s not just any Spring Budget, this is an election-year Spring Budget – the Tories will be desperate to offer some good news.
In this week’s blog, I look at what could be in the offering for UK taxpayers.
Income tax
There have been rumours of a cut in income tax, potentially reducing the basic rate from the current 20% to 19%, or even 18%.
Alternatively, the government may choose to increase the thresholds at which you start paying tax, aka. the Personal Allowance, say from the current £12,570 to £15,000 for example, and/or the point at which higher rate tax kicks in, say from £50,000 to £60,000. These thresholds have been frozen since 2022, during which we’ve seen a surge in inflation and wage growth.
But a word of caution, in February, the Chancellor hinted that there may be less room for tax cuts than anticipated, he said: “I need to set people's expectations about the scale of what I'm doing because people need to know that, when a Conservative government cuts taxes, we will do so in a responsible and sensible way.” There’s also an article in today’s Times, highlighting that “the public finances showed a record revenue of £16.7bn in January but that undershot the Office for Budget Responsibility’s forecast” and could therefore “threaten Jeremy Hunt’s plans for tax cuts”.
That may imply a 1p cut rather than 2p is more likely, or an increase in one threshold but not the other. But the expectation is that we’ll get something here.
ISA shake-up
There’s a fair amount of speculation around a shake-up of the current ISA regime.
At present, UK residents can invest up to £20k a year into ISAs, which then shields any subsequent investment profits from tax.
There are rumours that:
- The overall ISA limit may be increased, perhaps to £25k a year,
- Lifetime ISAs will be reformed – potentially increasing the underlying house price limit for first-time buyers (this was set at £450k back in 2016 and hasn’t increased since, despite a c. 30% rise in UK house prices) and/or removing the implicit penalty on withdrawal (for any reason other than a first house purchase or beyond the age of 60),
- A ‘Great British ISA’ could be introduced – an additional allowance, say £5k a year, to invest solely in UK-listed companies.
For what it’s worth, I’d be opposed to the latter. I don’t believe the government should be meddling in where people invest their money, potentially restricting portfolio diversification (which translates to additional investment risk).
Furthermore, the main issue as to why the UK stock market has lagged behind its global peers is a lack of growth. Incentivising retail investors to buy more shares on the secondary market (and that’s a key point – you’re not actually giving more capital to the businesses themselves, merely buying shares from someone else) is unlikely to ‘move the needle’ on UK growth prospects.
More help for parents
I recently wrote about the ‘£100k childcare cliff-edge’, whereby parents of young children can be left worse off once their earnings cross the six-figure threshold (see article here). There’s a similar tax trap once a parent earns more than £50k a year, as their child benefit entitlement starts to taper away.
There are calls on the government to reform this, which I would be very much in support of (albeit biased, with a two- and a four-year-old).
The rumours are that we could see:
- An increase in the earnings threshold at which the ‘high-income child benefit charge’ applies, from the current £50k a year to say £60k,
- Any loss in tax-free childcare or free childcare hours be ‘tapered’ (i.e. gradually reduced) once earnings exceed £100k a year, rather than a cliff-edge - under current rules, earn £1 above £100k and you lose all the benefit.
Inheritance tax reform
There’s still some speculation that inheritance tax could be reduced or even scrapped.
However, given the negative public reaction when this was last rumoured ahead of the Autumn Statement, this would seem unlikely.
Capital gains tax and tax on investment income
From April 2024, the tax-free allowances for capital gains and dividends are due to be reduced from £6,000 and £1,000 a year to £3,000 and £500 respectively.
Could this be scrapped? Maybe, albeit unlikely in my view as it would be a pretty swift U-turn.
Conversely, there has been speculation in the past that capital gains tax rates could be aligned with income tax. At present, they’re 10% and 20% for basic and higher or additional rate taxpayers respectively (or 18% and 28% where gains are made on residential property, excluding your main residence), whereas income tax is charged at 20% (basic rate), 40% (higher) and 45% (additional).
However, this would cause an increase in tax for many and is therefore unlikely so close to a General Election.
What about pensions?
We may hear a bit more about the government’s plans for a ‘pot for life’ (click here for my thoughts on this), but otherwise, we’re not anticipating a big shake-up in pension policy with this budget. Although ‘never say never’ of course.
‘Other stuff’
In past years, Chancellors have often ‘pulled a rabbit out of the hat’, something completely unexpected. As noted at the outset, the current government will be keen to deliver some good news ahead of a General Election.
Tune in at 12:30 pm on March 6th.
Disclaimers: The Financial Conduct Authority does not regulate tax advice. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts and their value depends on the individual circumstances of each investor. This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. Since I don’t know your specific situation, none of this information should be construed as tax or financial advice. It is not an offer to purchase or sell any particular asset and it does not contain all the information which an investor may require to make an investment decision. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
