The tax changes to watch out for in the upcoming Budget
With the Autumn Budget fast approaching, all eyes are on Chancellor John Healey as he reveals his plans to tackle ways in which the Government can raise additional revenue, as public spending remain under scrutiny and geopolitical uncertainty adds to the rising costs.
So, what could come under the spotlight on 30th October?
Pensions
An obvious target likely to attract attention would be pension tax relief, particularly for higher rate tax payers. The problem is, pensions are a long-term policy area, which possibly explains why the questions surrounding pension tax relief have been repeatedly placed under the Budget spotlight, only for significant reform not to materialise.
The other area which may come into focus is the tax-free pension commencement lump sum. Currently, eligible individuals can generally take up to 25% of their pension benefits tax-free, subject to a maximum of £268,275 for most people – although the £250,000 figure is sometimes used when discussing proposed or historical limits.
Reducing the amount that can be taken tax-free would provide the Government with another potential source of revenue, however, people have built their retirement planning around the existing rules and changing them could prompt people to bring forward decisions that would potentially reduce the immediate revenue available to the Treasury.
Council Tax
Perhaps the most radical option would be a fundamental overhaul of Council Tax. Revaluing properties and introducing a more up-to-date system could potentially generate substantial additional revenue, particularly from higher-value properties. However, any wholesale revaluation would create winners and losers and could have significant implications for homeowners, landlords and the wider property market. With the housing market already facing considerable uncertainty, is now really the time to introduce another major property tax shock?
Business taxes
One of the perennial Budget rumours surrounds further alignment between Capital Gains Tax (CGT) and income tax rates. There has been political support for this, but there is a greater question around whether increasing CGT rates would actually deliver a meaningful increase in receipts.
Another potential target is the banking sector. Increasing the bank levy or otherwise raising the tax contribution from banks could be an attractive option for the Chancellor. However, the Government needs to be careful. Banking is an international industry and increasing the tax burden too far could ultimately prove counterproductive if activity moves elsewhere.
Fuel duty – and the VAT question
With petrol and diesel prices already being pushed higher by geopolitical tensions and increased oil prices, delaying or cancelling an increase in fuel duty could provide some relief to households and businesses.
However, when fuel prices rise, the Government receives not only the fixed-rate fuel duty but also VAT on the overall price paid at the pump. In other words, when the underlying cost of fuel rises, the VAT take can rise too.
You can read more about our views on VAT and fuel duty on our recent blog here.
It will be interesting to see whether the Chancellor acknowledges that additional VAT windfall when considering fuel duty.
What should we expect?
In short, the Chancellor needs to raise significant revenue, but most major tax options carry economic risks. The key challenge will be raising the money needed without discouraging investment, saving, business activity or consumer spending – all of which ultimately generate tax revenue.
If you are thinking about bringing forward any decisions pre-Budget or would like some further advice about forward planning, contact Monahans to see how we can help.
