The date for the 2018 budget has been announced and rumours are starting to circulate regarding what may be included. The chancellor Philip Hammond needs to find £20 billion by 2023 to fund the NHS spending pledges and the speculation runs around how he may be looking to achieve this. Here we detail some areas that may be affected, and we strongly recommend that you look at you finances and act now to prepare and soften any blow that may be in store.
£38 billion is paid out year on year in pension tax relief and capital gains tax and devise stealth taxes will also be in the spotlight. It is thought that the most likely change will be an additional cut to the annual pension tax relief allowance. It has gradually been reduced to £40,000 in previous years and may now be shrunk again to £30,000. This will immediately yield about £500 million for the chancellor, rising to £1 billion over the next few years. It is possible that he will also raid the tapered annual contributions allowance, for those with an income of more than £150,000 a year by lowering the threshold here too.
Income Tax accounts for about a quarter of all tax revenue and is therefore an obvious target. By increasing the tax by 1% which is a rise many say that they would be comfortable with, he can potentially procure £6.29 billion by 2021-22. This increase would take effect across the board and would encompass the higher rate and top rate tax brackets as well.
Corporation tax used to stand at 30% cent and is currently held at 19%. Compared to Germany at 30%, France at 33% and Italy with a rate of 24%, it is reasonable to expect some movement here, whilst still leaving the rate considerably lower than our European competitors. A 1% increase is the obvious move, but it has been questioned how willing will the government be to increase a tax on employers when it needs Britain, post-Brexit, to be more competitive.
Increasing the main employee national insurance rate by 1% would work well for the chancellor and raise £4.2 billion by 2021-22. In addition, a similar rise in the employer rate would also net another £6 billion. However, after he was forced to back down on his plans to raise contributions for the self-employed by 2 percentage points in 2017, he may be reluctant to take this option now.
Capital gains tax could also be a target as the basic rate of 10% and the 20 % higher rate tax are considerably under the corresponding income tax rates. It is also believed that the entrepreneurs’ relief may be under review. Currently set at 10%, this especially low rate benefited entrepreneurs when they sold their business and was valid up to £10 million, but with the lower basic rate now also down to 10% its benefits have been eroded.
Another possible change could be the concessions to investors who are currently enjoying 30% tax relief on investments in Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs). However, after a review into the financing of small and innovative businesses, the Treasury tightened the qualification criteria, but kept the tax reliefs in the November 2017 budget, so this may not be in the mix this time around. However, stricter regulations may be implemented for companies and the Alternative Investment Market, where they qualify for business property relief.