Budget for working families

George Osborne has previously indicated that his first Budget of this new Parliament will be for working families. So what can we expect in next week’s Budget?

Income Tax, NIC, VAT and Pensions

There will be good news in that the Chancellor will almost certainly confirm his “triple lock” pre-Election pledge that there will be no increase in the rates of income tax, NIC or VAT until 2020.

Some commentators are even predicting a possible reduction in the top rate of income tax from 45% down to 40%, but this will probably not happen, particularly as we expect the Chancellor to target these high-earners as a means of raising revenues by restricting the amount of tax relief they receive on their pension contributions. Anyone planning to make significant pension contributions in this tax year may be wise to bring forward their plans and make the payments before the Budget.

Landlords, Capital Gains Tax and Tax Credits

So where will the Chancellor raise much needed revenues from if the employment earnings of working families are to remain unaffected in the Budget? We believe there are 3 possible targets.

The current rates of capital gains tax (18% and 28%) are significantly below the top rates of income tax (40% and 45%) and it is quite feasible that the Chancellor will do what he did in his first Budget after the 2010 Election and increase these rates.

Property landlords are currently entitled to a wide range of tax reliefs and these reliefs cost the Government a large amount of revenue each year. Some of these tax reliefs may be withdrawn in the Budget and a prime candidate would be loan interest costs.

Anyone currently in receipt of tax credits should brace themselves for significant reductions in the future, as the Government has already indicated that this will be a key focus of its £12 billion of welfare and benefit reforms.

Inheritance Tax

We predict largely good news for families from an Inheritance Tax perspective. There is an expectation that married couples will be able to have residential property assets of up to £1 million (up from the current level of £650,000) and not have to pay Inheritance Tax. These changes could however be relatively complex e.g. the increase may only apply to the family home and any families with total assets over £2 million may not receive the full benefit of this change.

Business Capital Expenditure

A lot of our business clients are keen to know whether the very advantageous Annual Investment Allowance which is currently £500,000 will be dramatically reduced to £25,000 at the end of this year as originally planned. The Chancellor has recently acknowledged that such an extreme change is far from ideal for businesses and we are hopeful that he will announce a much more gradual reduction. So what do we think the new level will be? Using the complex scientific formula of “let’s split the difference!” our prediction is that it will be in the region of £250,000.

We’ll be commenting on the budget when it happens so make sure you follow us on Twitter or check out our news page.

 

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