Britain's Chancellor of the Exchequer Philip Hammond arrives in Downing Street in London on October 24, 2018. (Photo by Tolga AKMEN / AFP)TOLGA AKMEN/AFP/Getty Images
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Investors could witness changes to the Isa regime in this year’s Budget, according to wealth managers, who suggest a host of tax allowances and reliefs could be trimmed despite an unexpected £13bn upgrade to the public finances.

Simplification of individual savings accounts (Isas) has been urged this year by both Labour and Conservative MPs. Reducing the number of different types of Isa may help to iron out “odd quirks” in their rules, according to Rachael Griffin, tax and financial planning expert at Quilter.

The Lifetime Isa— designed to help the under-40s save for their first home, or retirement — has been the focus of intense debate. The government rejected calls from the influential Treasury select committee to scrap it this month. Broker AJ Bell said it could, however, “go the other way and supercharge the product” by ditching the exit penalty or increasing the £4,000 annual savings limit.

Meanwhile, Willis Owen, a broker, said a potential further cut to the dividend tax allowance could be a possibility, “particularly if there is a need to offset cuts in corporation tax”.

Pensions savers were rattled by the chancellor’s recent comments about the “eye-wateringly high” cost of tax relief on retirement savings. Advisers are not expecting radical changes, such as moving to a “flat rate” system or slashing the pensions commencement lump sum, but concede that the annual and lifetime allowances could be cut.

“If the annual allowance is reduced from £40,000, the blow could be softened if the lifetime allowance was raised above the rate of inflation, or, better still, scrapped altogether,” said Jason Hollands, managing director of Tilney, a wealth manager. Advisers say the chancellor could also lower the income threshold at which the annual allowance starts to taper from £40,000 to £10,000. This is currently £150,000, but could be reduced to £125,000, some advisers have suggested.

Inheritance tax is also in the spotlight. The chancellor asked the Office of Tax Simplification to review the level of complexity in the current system. Its report is due this autumn, and it is possible Mr Hammond could reveal some of its conclusions on Monday.

One contentious area is the inheritance tax break attached to investments in certain Aim-listed companies. Investors have been snapping up shares in stocks that benefit from business property relief as a means of reducing future IHT bills. However, high-profile problems at Aim-listed Patisserie Valerie and Conviviality, which collapsed earlier this year, have drawn attention to how popular this is becoming.

“We might see measures to clamp down on the availability of business property relief, for example by restricting the types of assets which attract it,” predicted Mr Hollands.

Paul Arathoon, partner at law firm Charles Russell Speechlys, said that if business property relief was withdrawn, investors “may feel that the risk profile of Aim has become unpalatable”.

Despite the chancellor’s disastrous experience at the 2017 Budget, he may again attempt to make self-employed people pay more national insurance. Last time, he was accused of a tax raid on “White Van Man”, but the government is keen to target highly paid contractors who working as de facto employees, and should therefore be paying more.

Help to Buy, the government’s equity loan scheme for homebuyers, has attracted attention ahead of the Budget after growing criticism that it fuels house price growth, is used by a substantial number of higher-income applicants and has driven up executive pay at housebuilders.

Due to end in 2021, the five-year-old scheme has already been extended by the government and given a £10bn funding boost. Mr Hammond could ignore its detractors by extending it further, or address some of their criticisms by restricting it to first-time buyers only. Another alternative would be to set a threshold of annual income above which households would not qualify for the scheme.

Lindsay Judge, senior policy analyst at the Resolution Foundation think-tank, said: “Reining in the programme by introducing an income cap of £60,000 per household would mean that the extra £10bn committed to the scheme last year could be stretched to help those on middle incomes beyond the current end date of 2021.”

Another potential policy shift to help homebuyers would be changes to England’s planning system to ease the conversion of empty shops to homes. Reported in the FT this week as an idea under consideration by Mr Hammond, the move would help free up the housing market while giving a new and different lease of life to declining high streets.

Reporting by Kate Beioley, James Pickford and Claer Barrett

The chancellor will deliver his 2018 Budget at 3.30pm on Monday October 29. You can view live updates on FT.com, or follow @FTMoney on Twitter.

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