The UK Spring Budget on 6 March may well be Jeremy Hunt’s last chance to change the fortunes of the Conservative party ahead of the next general election. So, is there anything the Chancellor can announce to reverse the Labour party’s lead in the polls? Peter Webb, our Head of Tax Advisory, looks at some of the financial concessions which might be revealed.
It’s clear that the UK is in an uncomfortable period. The Office of National Statistics reports that the UK economy hasn’t grown since 2022 and inflation remains high at 4%. The UK tax burden, or how much of our income and wealth we lose in tax, is also the highest since the Organisation for Economic Co-operation and Development began measuring it in 2000. This is despite the recent cut in National Insurance contributions. Frozen tax bands, decreasing allowances and high inflation will mean that the UK tax burden is set to increase over the next few years.
Against this challenging background, the Spring Budget is likely to contain some headline-grabbing announcements to attempt to create a more positive tone about the UK economy, and the Conservative party, ahead of the election.
What might Jeremy Hunt announce?
- VAT – the registration threshold for VAT, which sits at £85,000, hasn’t changed since 2017. So, an inflationary increase is likely. This will help many small businesses remain outside of the administratively oppressive VAT regime and would be a welcome move.
- Stamp Duty – this may well be abolished or reformed for share transactions. At the moment 0.5% is generally paid in Stamp Duty when shares are purchased. Abolishing the charge could boost UK capital markets.
- Tax allowances – tax bands have been frozen until 2027/28, adding to the tax burden by increasing the amount of Income Tax being paid. The Chancellor could unfreeze the thresholds – but will this be a big enough headline to grab voter’s attention?
- Income Tax – a more likely announcement is a reduction in the headline rate of Income Tax. This will produce its own challenges and it’s unclear whether Jeremy Hunt has scope to make this type of concession. It’s worth noting that in 2022/23 the UK government spent £131 billion more than it received in revenue, and government debt currently sits somewhere above £2.5 trillion.
- Inheritance Tax – reforming (or even abolishing) IHT has been on the cards for some time, and it would be no surprise to see significant announcements this Spring.
What changes have already been announced?
Here’s a recap of what we already know:
- Income Tax – the higher rate and additional rate of tax are both changing from 6 April 2024. The 45% rate will kick in at £125,140 rather than the current limit of £150,000 meaning many more will be drawn into paying tax at 45%.
- Capital Gains Tax – the annual exemption will be reduced again; it’s fallen from £12,300 last year to its current rate of £6,000. From 6 April 2024 it’ll be just £3,000.
- Inheritance Tax – reliefs for passing on the value of agricultural property and woodlands will be withdrawn for property and woodland in the European Economic Area from 6 April 2024.
- Dividends – allowances will be cut – last year they were £2,000, this year they are £1,000 and from April only £500 can be taken tax free.
- Pensions – the lifetime allowance for pension savings will be abolished from 6 April 2024 following the removal of the lifetime allowance charge in April 2023.
- National Insurance – in the Autumn Statement Mr Hunt announced National Insurance for employees would be cut from 12% to 10% from 6 January 2024. Class 4 rates for those who are self-employed will also be cut from 9% to 8% from 6 April 2024, with Class 2 contributions abolished.
- ISAs – from 6 April 2024 new changes to ISAs take force. One of the key updates is that payments into more than one Individual Savings Account of the same type in each tax year will now be allowed.
- National Living Wage – this increases for those aged over 23 from £10.42 an hour to £11.44. It also increases to £11.44 from £10.18 for those aged 21 and 22.
- Corporation Tax – company profits over £50,000 will be taxed at 25% with only companies with profits under £50,000 able to access the old 19% rate.
- Charitable donations – individuals (or corporate donors) making donations to charities in the European Union (EU) or European Economic Area (EEA) will no longer qualify for UK tax reliefs including Inheritance Tax relief.
Whilst we wait to see exactly what else is announced on 6 March it’s fair to say that Jeremy Hunt doesn’t seem to have much room for manoeuvre. And with a General Election looming, and the Conservatives far behind in the polls, headline grabbing announcements are a certainty. Although many of the changes coming into force over the next few months have been well publicised, the outcome is that more tax will be paid by more people. Considering ways to reduce UK tax on your income and investments before 6 April 2024 is a sensible move.
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