Having been delayed during the protracted Brexit withdrawal process, the Budget is finally set to take place on March 11.
With the Conservatives securing a larger majority than predicted, could the Chancellor provide a few surprises in next month’s speech? Here’s what experts are predicting Rishi Sunak will change in the Budget.
Increasing the National Insurance threshold
One of the main pledges in the Conservative manifesto was to increase the threshold for paying National Insurance.
Currently, 12% NICs are payable on earnings over £8,632. The aim is to raise this threshold to £9,500 and eventually to £12,500 over several years. The threshold increase would save someone on the UK’s average wage around £100 each year.
However, the planned increase in the National Insurance threshold could result in issues for future pensioners. As you need 35 years of NI contributions to qualify for the full State Pension, lifting people out of paying NICs now could leave them better off today, but much worse off in retirement.
It will be interesting to see how the government expects to manage this issue, and whether there may be changes to how individuals accumulate NIC ‘qualifying years’.
Changes to pension allowances
Issues facing NHS staff thanks to the complex Tapered Annual Allowance have made headlines over the last few months. Many senior NHS staff have refused to take on extra shifts because of a potential sizeable tax bill that will become due on these additional earnings.
The Chancellor is set to announce the results of an urgent review into the allowance in the March Budget. There is speculation that the allowance could be:
- Abolished entirely
- Amended for NHS and public sector staff
- Amended for all taxpayers, not just those in the NHS.
One of the possible options is that Mr Sunak will raise the threshold at which the taper begins (currently around £110,000).
With such a large majority, there may also be tweaks to other aspects of pension legislation, such as the Annual Allowance or Lifetime Allowance.
It is not expected that the government will make any changes to the ‘triple lock’ on the State Pension, which will see the full State Pension rise by 3.9% in April 2020.
Changes to Inheritance Tax rules (and rates?)
Changes to Inheritance Tax (IHT) have been mooted for years and it is possible that there may finally be announcements in this Budget.
The Office of Tax Simplification has made a number of recommendations regarding the tax, with one likely change being to reduce the period of exemption of lifetime gifts from seven to five years. This would mean that someone giving a gift would only have to survive for five years following the gift for the transfer to be exempt from IHT.
Possible other changes could be:
- A cut to the rate of Inheritance Tax, from the current level of 40%
- Removal of some of the tax-free allowances
- A cap on cash gifts over an individual’s lifetime.
Changes to Entrepreneurs’ Relief
In our guide to Entrepreneurs’ Relief, we looked at how this valuable relief works and how business owners can take advantage of this tax break.
To make full use of it you may have to move quickly, as the Chancellor is expected to cut Entrepreneurs’ Relief in the March Budget.
The scheme has been criticised for simply offering further tax breaks to already wealthy people, and for failing to achieve its stated aim of encouraging business investment. So, you can expect to see the Chancellor change the rules for Entrepreneurs’ Relief, perhaps by restricting it specifically to small businesses.
A First Homes scheme and reform of Stamp Duty
In the recent Queen’s Speech, the government announced that they would ‘take steps to support homeownership, including by making homes available at a discount for local first-time buyers.’
The Conservatives have said that they intend to give discounts of at least 30% to first-time buyers purchasing homes in their area, but no further clarification has been provided. Expect Rishi Sunak to supply more information about this ‘First Homes’ scheme and how this initiative world work: for example, what is a ‘local buyer’?
Having committed to reforming Stamp Duty, there may also be changes to this tax in the Budget.
During the election campaign, one of Boris Johnson’s pledges was that he would immediately remove Stamp Duty from all house sales under £500,000. The prime minister also said that he would consider shifting the responsibility for paying Stamp Duty from the buyer to the vendor.
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