In advance of the Budget, our Head of Tax, Nick Haines, played ‘Beat the Budget’ by giving us his five tax predictions of what was likely to be in the red briefcase. All in all the results were pretty good with 3 out of 5 predictions being announced and a fourth one promised if re-elected!
As predicted there were a couple of giveaways for savers including a new personal savings allowance, more flexibility for ISAs and a new Help to Buy ISA for first time buyers saving up for a new property. Also as expected more anti avoidance measures were introduced including larger penalties for ‘serial avoiders’, more Accelerated Payment Notices and confirmation that the Diverted Profits Tax will take effect from next month. Nick’s third correct prediction was an increase to the personal allowance with an increase of £200 announced for the 2016/17 and 2017/18 tax years with a promise to raise to £12,500 if re-elected. Lastly, the Chancellor announced that the Annual Investment Allowance would be revisited later this year but confirmed that it would not fall as low as the £25,000 currently legislated for. Again, however, this will depend on re-election!
The only thing not mentioned was the Inheritance Tax threshold, but it will be no surprise if this is included in the Conservative’s election manifesto in the near future!
Nick Haines’ pre-Budget predictions
1. A rise in the Inheritance Tax threshold - The Chancellor has recently commented that his aim is to ensure inheritance tax should only be paid by the ‘rich’. What his definition of ‘rich’ is remains to be seen but this seems to be a definite hint that we could see a rise in the IHT threshold. I would expect, however, any increase to be promised for a future date i.e. post election to gain favour with the voting public.
2. A change to the Annual Investment Allowance threshold – currently set to drop from £500k to £25k at the end of year. Although the Chancellor might not go as far as maintaining the £500k allowance, I think there is a possibility he might offer more than the £25k currently planned. This will continue to encourage capital spend by businesses and again curry favour with the voting public but this is likely to depend on how far he can stretch the purse strings! ?
3. Small giveaways for savers? Following the stamp duty land tax reform in the Autumn Statement, and with the focus on reducing the Budget deficit, it is unlikely there are going to be any big tax giveaways this Budget. If any cuts are to be had, however, I would predict they will be aimed at savers as they continue to lose out with record low interest rates.
4. More anti-tax avoidance measures – a common theme for Budgets these days and I would anticipate some follow up on the Diverted Profits Tax announced in the 2014 Autumn Statement.
5. Further increases in the personal allowance – again a common theme for the coalition governments time in power and I would not be surprised to see promises of further increases up to £12,500 for future tax years.