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March 15, 2013 6:19 pm
The chancellor will need to balance a sluggish economy, rising debt and a still-substantial deficit when he delivers his speech to parliament on March 20.
Accountants believe this points to a carefully targeted package of incentives in next week’s Budget paid for by a further crackdown on tax avoidance. Announcements could include tax breaks for investors who lend to smaller businesses, further increases in the personal tax allowances, and further investment in HM Revenue & Customs (HMRC) staff levels to help combat tax avoidance.
“George Osborne really needs to pull something special out of the bag this year,” says Ronnie Ludwig, partner in the private wealth group at Saffery Champness. “Stimulating the economy is imperative, especially given that we have lost our Moody’s AAA rating. The coalition is hardly high on political capital, so the choices are likely to be tricky ones and are certain to be interesting.”
Here, accountants tell FT Money what think could be in the chancellor’s red briefcase on Budget day.
We already know that the 2013/14 income tax allowance will be £9,440, but the stated aim of the government is to get the personal allowance to £10,000 by 2015 and experts predict that the chancellor will announce that next tax year’s allowance will be about £9,600.
“The purpose of the increase in personal allowance is to take those with lower incomes out of the tax net altogether and so it is likely that the increase will be taken away from those on higher incomes by adjusting the higher rate threshold,” says Richard Mannion, national tax director at Smith & Williamson.
Dominic O’Connell, head of tax, trust and estate planning at Coutts, says the government might fund an increase in the personal tax allowance with an national insurance contributions increase for the self-employed, who currently pay less than the employed. “This might be justified by the government on the basis of the introduction of a flat-rate state pension,” he says. “However, as the pension change is not scheduled until 2017, introducing such an NI alignment before then could be controversial.”
After successive years of raids on pensions tax relief, experts predict that the sector will be spared the knife – if so, pension advisers will be relieved, as they feel the constant tinkering is discouraging saving. There have been rumours about fresh cuts to the tax-free lump sum, currently 25 per cent of the pension pot, but industry experts say they would be surprised if any other fundamental changes were announced.
There have been calls in recent weeks for the chancellor to raise the inheritance tax threshold but accountants expect the nil-rate band will remain frozen at £325,000 until 2019.
Mannion says: “IHT is a very emotive tax, but the reality is that relatively few estates are liable to pay it and it is a tax that can be circumvented quite legitimately by giving assets away and then surviving seven years.”
But others foresee some tinkering to IHT. “The coalition plans to fund the new £75,000 cap on elderly care costs with changes to IHT,” says Tim Gregory at Saffery Champness. “So far they have proposed to freeze the nil-rate band for another few years but this seems unlikely to be enough to cover the care costs, so something further may need to be done.”
There were major upheavals in CGT in both 2008 and 2010, followed by a significant increase in the entrepreneurs’ relief, but some accountants believe we could still see a reduction in the headline rate of CGT from 28 per cent to 25 per cent.
“This would be a very nice little incentive to get people investing again,” says Ludwig at Saffery Champness. “Recent evidence suggests CGT has also raised less tax since it was increased to 28 per cent, so a return to 25 per cent would make sense on a fiscal level too.”
Stephen Herring at BDO accountancy firm predicts that receipts from CGT would increase if the existing 28 per cent were cut to say, 20 per cent as “more taxpayers would be willing to crystallise a gain”.
The fine line between acceptable and unacceptable tax planning continues to dominate UK politics, while the General Anti-Abuse Rule is already due to come into effect later in the year, O’Connell at Coutts says it would not be surprising if more specific measures were announced in the Budget to ensure artificial and abusive avoidance schemes are tackled as efficiently and robustly as possible.
Experts predict that the government may decide to extend the availability of the capital gains tax deferral relief on Seed Enterprise Investment Schemes (SEISs), which allow tax-advantageous investment in very early-stage businesses, or loosen the eligibility restrictions in order to encourage take-up.
Additional reporting by Josephine Cumbo
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