At last the Autumn UK Budget…

AAM Autumn UK Budget

At last the Autumn UK Budget…

In many respects 2019 was an unusual year. One of the oddities was that the entire year passed without a UK Budget.

The Autumn 2019 UK Budget was meant to happen on 6 November, but the General Election intervened. In the subsequent campaign, the Conservatives said that during their first 100 days in power they would deliver “…a post Brexit Budget in February which will cut taxes for hardworking families”.

As Parliament resumed work after the holiday season, the Treasury announced that the next Budget – no season mentioned – would be on 11 March 2020.

Another twist to the saga was Sajid Javid’s unexpected resignation and replacement as Chancellor by Rishi Sunak. How this may affect budget planning is yet to be seen.

What we know is going to be in the 2020 Budget

The Treasury’s press release gives few clues. It makes up for this with plenty of political rhetoric, saying the Budget will “set out ambitious plans to unleash Britain’s potential…[and]… start a new chapter for the economy, seizing the opportunities that come from getting Brexit done”.

In practice we have a good insight into some of the Budget’s content because draft clauses for the Finance Bill that will follow it were published in July 2019. These include legislation, due to operate from 6 April 2020, to tighten the rules on capital gains tax for main residences, e.g. reforming lettings relief so that it applies only when the homeowner shares their property with the tenant.

It has already been confirmed that the starting point for paying National Insurance contributions will rise from the current £8,632 a year to £9,500. This is the promised “tax cut” in the Conservatives’ manifesto, which is worth up to £104 a year for employees and £78 for the self-employed.

What we don’t know is going to be in the 2020 Budget

Second guessing what might be – or might not be – in the Budget is always a dangerous game. This is particularly true for the first Budget of a new Parliament, with the next Election not due until the end of 2024. If the Chancellor wants to make some unpopular changes, March will be the time he does it, giving the electorate the longest possible time to forget about his actions. A few possibilities include:

Income Tax – The Conservative manifesto promised not to increase income tax rates. To some extent that ties the Chancellor’s hands, but it still leaves scope for manipulating tax bands, allowances and reliefs.

Pension tax reliefs – In the jargon of tax boffins, pension tax reliefs are ‘low hanging fruit’, i.e. a seemingly easy way to increase tax revenue. Tax and NICs relief will cost the Exchequer nearly £40bn in 2019/20, so there is plenty of fruit.

Mr Sunak has little choice but to address the issue of pensions tax in his Budget because of problems with senior NHS staff and annual allowance tax charges. A temporary ‘fix’ was introduced for NHS England (and Wales) last November, but this expires in April.

With its majority of 80, March could be the time when the Government does something radical on pensions, accepting that to tidy up the current mess means creating winners and losers.

Capital gains tax – Both Labour and the Liberals proposed taxing capital gains at the same rates as income in their manifestos. It would be far from unprecedented for a new Government to introduce the policy proposals of its defeated opponents and such a move could raise a substantial amount of tax.

Inheritance tax – Last year the Office of Tax Simplification (OTS) issued two papers on measures to simplify inheritance tax (IHT). The first dealt largely with administrative matters, while the second looked at the structure of the tax. The focus is now on changes being revealed in March, again with some potentially coming into force on Budget day.

Any measures are likely to be balanced between tax decreases and increases – for financial and political reasons the Treasury will not want to reduce the £5bn+ IHT it raises each year from a relatively small number of taxpayers.

…and a year-end planning deadline

Now that we have a Budget date, we also have an effective deadline for tax-year-end planning. As outlined above, there could be a range of measures announced on 11 March (normally operative from the beginning of Budget day) which could impact on such planning. The Government has loosened the purse strings on capital investment, but in terms of day-to-day spending it has little room for manoeuvre. The Treasury may thus be tempted to make some subtle tax changes to boost its coffers.

Your year-end checklist should include:

Pensions

With pensions in the spotlight now is a very good time to take stock of your pensions by having an AAM UK Pension Audit.

Capital gains tax

Time is running short to sell UK property before the CGT changes come into play. If you are going to sell you should act quickly.

Inheritance tax

While the Budget response to the OTS’s papers is awaited, you should consider using the current three main yearly IHT exemptions:

  1. The Annual Exemption. Each tax year you can give away £3,000 free of IHT. If you do not use all of the exemption in one year, you can carry forward the unused element, but only to the following tax year, when it can only be used after that year’s exemption has been exhausted.
  2. The Small Gifts Exemption. You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 exemption.
  3. The Normal Expenditure Exemption. The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions and the one most likely to be reformed. Currently, any gift is exempt from IHT provided that:
  • you make it regularly;
  • it is made out of income (including ISA income); and
  • it does not reduce your standard of living.

One way to combine the use of your CGT annual exemption with IHT planning could be to make an outright lifetime gift of investments. Such gifts would count as a disposal for CGT purposes and a potentially exempt transfer for IHT. The recipients of the gifts would start with a base cost for the investment equal to the gift’s value and there would be no IHT to pay at any time, provided you survived for the following seven years (possibly reduced to five under OTS proposals).

Action

The sooner you start planning ahead of that 11 March Budget date, the better. That is particularly important if you want to rationalise your pensions, as obtaining the relevant data can take time.

Now you have a Budget deadline, the clock has started ticking: contact us today to arrange for your tax-year-end review.

 

Important information

This article is an op-ed piece by Ian Black. The views expressed in this article are those of the author and do not necessarily reflect the views of AAM Advisory Pte Ltd. This document/article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any securities/products mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment product before making a commitment to purchase the investment product. Past performance is not necessarily indicative of future performance. Any prediction, projection, or forecast on the economy, securities markets or the economic trends of the markets is not necessarily indicative of future performance. Whilst we have taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice. The above report may contain data obtained from third parties and as such we cannot guarantee the accuracy of this data.