What should we look for in the Autumn Budget?

What should we look for in the Autumn Budget?

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Jason Hollands
Published: 15 Nov 2017 Updated: 13 Jun 2022

Stamp Duty reform

Revenue from Stamp Duty on property transactions has hit an all-time high, but there is evidence that this is clogging up the property market and hitting transaction volumes. This is bad news because a fluid property market supports both the labour market and social mobility – enabling people to relocate to fill jobs, families to buy bigger homes and retirees to downsize (releasing cash in the process).

There are a number of ways the Chancellor could approach a Stamp Duty reform, including targeted exemptions for first time buyers and those over the normal age of retirement. This would help those younger voters trying to get a foot on the property ladder and remove a deterrent to retirees downsizing, thereby releasing more family homes onto the market.

Raid on pensions – for the better off?

Since Gordon Brown was Chancellor, politicians have periodically treated pensions as a piggybank to dip into. The amount that can be accumulated in pensions without being subject to tax charges has been capped with the introduction of a lifetime allowance, which in turn has incrementally fallen to £1 million.

The maximum amount that can be invested in pensions annually has also been slashed significantly in recent years. This includes the introduction of a complicated tapered annual allowance for those with adjusted annual earnings above £150,000, limiting tax-efficient pension contributions to as little as £10,000.

So regular have the raids on pensions become in recent years, it seems that every Budget is now preceded by speculation of further restrictions or a more fundamental overhaul of the current system of pension tax relief altogether. Indeed, under George Osborne’s tenure as Chancellor the Treasury conducted a consultation on the future of pensions tax relief which noted both the rising cost to the public finances and also the disproportionate benefit enjoyed by higher earners due to the higher rates of Income Tax they pay. While an expected overhaul was ditched in the run up to the EU referendum, the threat has not gone away as the auto-enrolment of millions of employees into company schemes is going to ratchet up the long-term burden of pension tax reliefs.

Speculation has therefore returned that pensions are back in play and could provide the required magic bullet the Chancellor needs to fund Stamp Duty or student loan reforms and other giveaways.

Sweeping away higher and additional-rate tax relief on pension contributions altogether and moving to a flat rate of relief is the radical option. It is also one which could be positioned as fairness and at the same time actually make pensions more attractive for most people who currently receive relief at the basic rate. Yet it could also potentially be one of the more complicated options to introduce swiftly, and therefore alternatives could involve either lowering the threshold at which the tapered pension allowance starts, or the more straightforward option of just cutting the annual allowance.

Tax on dividends

In his previous Budget the Chancellor announced plans to cut the annual tax-free Dividend Allowance from £5,000 to £2,000, but due to the snap election this never made it into the Finance Act. A revival of this planned cut, aimed at directors of small companies who partially or wholly pay themselves via dividends rather than salary for tax and NI reasons, seems inevitable and could be introduced next April.

But will the Chancellor go further? One option could also be to accompany a cut in the dividend tax allowance with additional measures, such as increasing the basic rate of tax deducted on dividends from 7.5% to 10%.

Those with investments held outside tax-free wrappers such as ISAs and pensions are set to be caught in the crossfire. They could consider moving these assets into a more tax-efficient account through a process known as Bed and ISA or Bed and Pension.

For those already maximising ISA and pension allowances, it may make sense to transfer investments to their spouse if they are non-taxpayer or basic-rate taxpayer to reduce the tax liability. Such transfers between couples are not taxed but do affect full legal ownership and entitlement to the assets.

A freeze on the ISA allowance?

For several years the ISA allowance has been adjusted upwards for inflation. But the recent spike in UK inflation coming after a big leap in the ISA allowance to £20,000 could well persuade the Chancellor to keep the current ISA allowance frozen where it is for now. After all, £20,000 per year is a significant sum. For most basic-rate taxpayers, the first £1,000 of interest on savings held outside an ISA are tax-free already, so a freeze on the ISA allowance would be politically easy to do.

One part of the ISA market where the Chancellor may take a different approach, and we could see an increased allowance, is the Lifetime ISA. This is the Government’s recently introduced account aimed at younger people to help them finance their first property purchase or save for retirement.

Technical changes to EIS and VCTs

We expect to see measures announced to improve access to financing for young, innovative businesses on the back of a wide ranging review. The headlines may lead on a new Government-backed investment fund, which in reality will seek to plug a potential funding gap should UK companies lose access to the European Investment Fund.

But the consultation has also kicked the tyres on existing UK schemes, including the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) that currently offer attractive tax perks to investors. It has questioned whether some of these have been designed to enable investors to achieve the tax reliefs while focusing on capital preservation rather than risk-taking.

We think a change to the tax reliefs on these schemes – which include a 30% Income Tax credit – is unlikely, as in the scheme of Government finances a reduction to 20%, for example, would be peanuts. Instead, we expect stricter criteria around qualifying “asset-backed” deals to ensure the scheme is firmly focused on financing genuine growth companies that can create jobs, and possibly an extension of the minimum holding period for these schemes to encourage long-termism.

For more information on anything in this article please call us on 020 7189 2400 or email contact@tilney.co.uk


This article was previously published on Tilney prior to the launch of Evelyn Partners.