The pre-Brexit Budget will be revealed by the Chancellor Philip Hammond on Monday (29 October) at what is a time of great uncertainty for the future of the UK.
Tax Partner Tom Penman offers his predictions on what we are likely to see in this year’s Budget statement, while Economic Advisory Director, Andrew Webb, discusses what the Prime Minister’s announcement of ‘end of austerity’ could mean.
Andrew Webb, Economic Advisory Director, Baker Tilly Mooney Moore
Will the ‘end of austerity’ come at a price?
The recent Conservative party conference was dominated by a curious mix of Brexit and Theresa May’s dancing steps as she arrived on stage. Given the attention afforded to those topics one could have been forgiven for missing a significant policy announcement. After a decade long programme of public spending cuts and constraint, the Prime Minister announced an end to austerity. While those that have borne the brunt of an austerity programme that has reduced Police numbers, reduced social welfare programmes, increased waiting lists in the health service, starved local authorities in GB of funding etc. will perhaps breath a sign of relief, the Prime Minister was careful not to create too great a sense of the purse strings being loosened with abandon, noting:
‘When we’ve secured a good Brexit deal for Britain, at the spending review next year we will set out our approach for the future. A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off.
There must be no return to the uncontrolled borrowing of the past. No undoing all the progress of the last eight years. No taking Britain back to square one. But the British people need to know that the end is in sight. And our message to them must be this: we get it.’
This announcement of the end of austerity has raised the stakes for the Chancellor in his forthcoming budget. Already committed to continuing to reduce the deficit until the second half of the 2020s, significant cuts to many departments’ budgets have been pencilled in. To add a further complexity to the Chancellor’s options, an extra £20bn needs to be found for the NHS by 2023 and fuel duties have been frozen for the 9th year in a row. That measure costs HM Treasury an estimated £9bn per annum.
With the extent of financial juggling required to meet competing demands and commitments, ‘Spreadsheet Phil’ might have to open a new tab. Of course, there is the option to borrow more but the mood music is one of a mix of revenue raising and borrowing. While the Chancellor identifies as a ‘low-tax Tory’ he has opened the door to some tax increases.
Tom Penman, Tax Partner, Baker Tilly Mooney Moore
This year’s Budget is the last and most important fiscal announcement before the UK officially leaves the European Union. Among the tax and spending decisions we can expect, is a predicted rise in Capital Gains Tax.
Speculation is growing that the Chancellor will look to raise the rate at which capital gains tax ‘CGT’ is charged. Currently individuals making gains on the sale of residential property (where principal private residence relief does not apply in full) pay CGT at the rate of 28%, with the rate being 20% on other types of gains. Don’t be surprised if the Chancellor raises these rates. It would be especially timely in relation to residential property given the current publicity around increasing the amount of affordable housing for the younger generations.
It is also widely anticipated that Entrepreneurs Relief will take a hit. This is the relief that provides for a 10% CGT rate on the disposal of certain business property. It was enacted in a rush amidst much clamour when taper relief was scrapped in 2008. Some believe the relief isn’t structured to deliver the intended results, and instead of promoting serial entrepreneurs to invest in, grow and sell start-up businesses, the relief actually promotes the maximisation of capital value by shareholders in SME companies. It is predicted that the currently generous lifetime limit of £10 million will be reduced.
It is possible there may be a change in taxing dividends. Back in April the dividend allowance, that is, the amount each individual can receive before they start to pay tax on dividend receipts, was cut from £5,000 to £2,000. It is thought that the Chancellor, looking for easy wins, could hit this allowance again, maybe halving the amount to £1,000. The allowance was introduced by the previous Chancellor to sweeten the pill of increasing the tax on dividends particularly as Basic Rate tax payers did not pay any tax on dividends received prior to its introduction.
In what could be a double whammy for shareholders, some commentators are predicting that in addition to reducing the dividend allowance, the basic rate of tax on dividends could be increased from the current 7.5% to possibly 10%.
Finally, not a budget goes by without some tinkering of the pensions’ regime and we wouldn’t be surprised to see this one follow suit. We expect to see some sort of restriction to higher rate tax relief on pension contributions. It is expected that relief will be restricted to basic rate tax or a hybrid rate of 30% on the annual amount. If that does happen the date of implementation might be interesting. If it is deferred until April 2019, we might be seeing lots of pension contributions between now and the end of the tax year.