Budget 2014: What will the Chancellor announce?
Chancellor George Osborne is set to restrict what can be held in pension schemes, with possible new limits on tax relief, and an announcement pension pots below £40,000 will no longer have to buy an annuity.
“The government has put in place measures to further limit tax reliefs to those thought of as wealthy,” said Richard Harwood, divisional director of financial planning. “It would seem that there is political will to restrict tax reliefs so the limits may be tightened further in future, but there is a danger that these will again hit the ‘squeezed middle’.”
Investment limits in venture capital trusts (VCTs) and enterprise investment schemes (EISs) could also be lifted, but restrictions on what can be placed in them may be tightened, Harwood said.
“Increasingly, EISs and VCTs are providing funding for businesses that would traditionally be the domain of banks.
“But we would not be surprised if there was further tweaking of the rules on what investments are approved in order to ensure there is true risk within the plans and that they are not just schemes to maximise tax reliefs.”
“This continues to be a priority, and any victory in court for HMRC is strongly publicised, so we should expect the closure of perceived loopholes to be highlighted,” Harwood said.
Tax and national insurance
Head of portfolio strategy Guy Foster said Osborne may choose to raise the minimum wage, with the funding being taken from further advances in the personal allowance.
“Osborne has been quite clear about the type of budget he is planning,” he said. “Large scale giveaways are not justified by either the political or economic cycle this year.
“Even as inflation falls, however, the accumulated decline in real incomes from rising prices and stubbornly inert wages remains a hindrance to economic prospects. A big issue therefore is what he may do for the low paid.”
Speculation is mounting the government may be set to reinvent the ISA, according to divisional director Rob Burgeman.
“The uncertainty is most unwelcome and destabilising at a time when every encouragement should be given to those seeking to ensure their long-term financial security. Any restrictions on ISA savings will drive the spare savings flow into the already overheated property market.”
Capital gains tax
Reform of capital gains tax is also needed, Burgeman added: “Greater simplification is required over CGT, especially as savers are now being taxed on inflation since the indexation of book costs was removed. How long before we will see fair differentiation in the taxation of short-term speculation and long-term investment?”
More predictions from Baker Tilly
– State pensioners and those due to reach state pension age before 6 April 2016 with less than a full entitlement are likely to be given the right to buy extra pension. This will affect people such as married women who did not work and will no longer be entitled to a pension based on their husband’s contributions, or those who worked abroad for many years.
– More detail is expected on the Government’s plans for the tax-supported childcare scheme – the replacement for the current voucher scheme – as well as details on the provision of nursery education. The new childcare scheme will be available to all working parents, including the self-employed, and is likely to have a greater impact on parents than most other tax changes.
Home buyers and sellers
– The Chancellor may announce an increase in the number of Stamp Duty Land Tax bands to reduce the distortion in the market, and raise the nil rate band to £200,000 to take account of price rises.
– Capital Gains Tax is likely to be charged to non UK residents who make gains on the sale of UK residential property from April 2015. This was announced in George Osborne’s 2013 Autumn Statement and may be detrimental to incoming UK investment, Baker Tilly said.
– The government could reconfigure VAT to give some respite to victims of the recent floods. A reduced rate extension to encourage specific projects would help affected homeowners and be a step towards repairing other weather-related damage. A reduction – from 20 percent to say 5 percent – in the VAT cost would provide a significant cash flow benefit to those who need to incur expenditure on remedial works. Repair, renovation and maintenance of housing are also expected to incur lower rates of VAT.
– Even in the wake of the ‘Pasty Tax’ furore, the Government is expected to continue to make minor tweaks to VAT rates and exemptions. Sports participation could become VAT-free, and cyber-currency Bitcoin may also become exempt. Various other anomalies will be corrected, Baker Tilly, said, in an effort to streamline the tax system.
The Chancellor will deliver his Budget on 19th March.