The chancellor Philip Hammond is busy preparing his Budget 2018 and we’re getting ready for it too here at Nudge. Ahead of his statement on Monday 29 October, we’ve rounded up what could be coming up. Click here to register for our webinar the morning after the budget to understand what actually happened and how it impacts your people.
We know the NHS has been promised an additional £20bn and that Theresa May heralded the end of austerity at the Conservative Party conference a few weeks ago. That means ‘spreadsheet Phil’ will have to live up to his nickname, balancing the books to pay for these. There has been talk in the lead up to Budget day that ‘nothing is off the table’ and while the chancellor is not known for pulling rabbits out of hats, there could still be a small card trick or two.
The current government promised to raise the thresholds for tax by 2020 when elected – to £12,500 for the personal allowance and £50,000 for the higher rate threshold – but there has been some uncertainty as to whether this will now happen. In a recent interview with the BBC, Hammond left the door open to tax rises. However, the Financial Times suggests he now has more money to play with than previously thought, saving him from having to increase taxes.
Another major plank of any Budget which can have a major impact on people’s everyday finances is Fuel Duty, but a rise is off the table. The Prime Minister has already promised to keep it frozen for the ninth year in a row. Happy driving!
Help for first-time buyers
There is more help than ever for first-time buyers hoping to get that difficult first foothold on the property ladder, from the Help to Buy equity loan and Help to Buy ISA to Lifetime ISA. While these schemes can only be welcomed, their appearance in quick succession has meant that taken as a whole, they are hardly streamlined and they even overlap in some instances.
A bit of tidying up of these schemes would not be unexpected. With no obvious replacement to the Help to Buy equity loan scheme and with it due to end in 2021, we expect a little attention from Hammond – such as an income cap or other taper – if not an extension.
Pension tax relief
Talk of a change to the current rates of tax relief has flip-flopped between being a dead cert to being totally off the table.
The current rates of 20% for basic rate taxpayers and 40% for higher rate taxpayers could be scrapped in favour of a single rate for all somewhere between these two rates.
This would be good for the vast swathes of basic rate taxpayers (around 80% of all taxpayers), incentivising them to put more towards their pension savings (in theory, at least), particularly with auto-enrolment contributions set to rise from April next year. But this would reduce the relief available to higher rate taxpayers, though (arguably) they are the ones who can afford to have this already generous relief reduced.
A more palatable change when it comes to higher earners could be reducing the threshold income at which the tapered annual allowance applies from £110,000 to £100,000. The £40,000 annual allowance could also be reduced too.
The population is greying and there have been several ideas floated recently in how people can be encouraged to save for the care they’ll need in their later years and minimise the burden on the state.
The idea of an auto-enrolment style system for social care, taking inspiration from the approach to pensions, has been floated as has a ‘Care ISA’.
But the social care green paper expected from the Government over the summer has not yet materialised and there has since been a change to the person in charge of it, when Matt Hancock replaced Jeremy Hunt as health secretary. Meanwhile, either of these projects or similar would be a massive undertaking at an already busy time, so we don’t expect this to make the cut for this early Budget.
The tax on gains made from selling assets sits well below the inheritance tax rate of 40%.
Currently Capital Gains Tax (CGT) is 20% or 28% on property, depending on whether the person is a basic or higher rate taxpayer, and 10% and 18% for other assets, taking into account an allowance of £11,700. These could all be tinkered with by the chancellor.
Buy-to-let investors have been landed with additional tax charges in recent years, particularly with the Stamp Duty surcharge on second homes. This brought in £4bn in the 2017/18 tax year, accounting for 43% of all Stamp Duty paid by homeowners, with no adverse effect on second home ownership. While a move to hike it would be unpopular among owners of second homes, holiday homes and those with buy-to-lets, the figures suggest it could be a good revenue raiser for the chancellor.
A more popular move would be the introduction of the surcharge for foreign buyers, announced by the Prime Minister a few weeks ago and details of which could come in the Budget. Such a move could help avoid any increase to the second home surcharge.