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Nine key moves to watch out for in Wednesday’s Budget
Wednesday’s Budget is George Osborne’s last chance to impress the voters before the general election. Here, John Stepek looks at nine things to look out for.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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As we discussed on Friday, the idea of setting up a market for second-hand annuities would allow existing pensioners to access the pensions freedoms that Osborne drove through in his 2014 Budget. However, this is a complicated business.
The government has announced that it will consult on how to set up the market, and it aims to allow pensioners to sell their annuities from April 2016 but it'll be interesting to see how it works, and who's allowed to invest in the repurchased annuities.
2. Removing inheritance tax from Isas
Voters hate inheritance tax (IHT). It doesn't matter that most of us will never have enough money to pay it. We just don't like the idea. So the chancellor could exploit this and also encourage long-term saving by allowing money to be passed on within an Individual Savings Account (Isa) wrapper, as Jonathan Eley notes in the FT's Money section. He's already laid the ground by making Isas transferable between spouses.
3. More tax on rich foreigners
Rich foreigners are great. They don't have many votes between them, they're pretty price insensitive, and no one has any sympathy for them. So look out for changes to rules that target absentee foreign home owners, and taxes on high-value properties.
4. More tax on multinationals
Expect more detail on the so-called Google Tax'. This is designed to make multinational companies pay tax on business activity in the UK, rather than allowing it to be funnelled elsewhere. This is part of a global move to tax multinationals more, which is one good reason to be wary of getting complacent about the massive global blue chips in your portfolio.
5. Stick peer-to-peer loans in your Isa
Peer-to-peer (P2P) lending is a very tempting area of investment, particularly with interest rates so low. Trouble is, it's taxable and for higher-rate taxpayers, that puts a big dent in the appeal. But there are already pretty advanced plans for allowing P2P to be held in your Isa, and when that happens, it could well herald an influx of money into the sector.
6. Get people to understand National Insurance
National Insurance is incredibly fiddly. The idea of reforming it or merging it with income tax has always been a back-burner aspiration for anyone who claims to want to simplify the tax system. But because no one thinks that voters understand it, it's not seen as a vote winner. A good start might be to rename it I don't know, something like NI Income Tax' or maybe the Payroll Tax' which would make it harder for governments of the future to raise it sneakily.
7. Less tax on North Sea oil
Supporting British industry is always popular. And the oil industry has been hit hard by the collapsing oil price. A move to make life easier for North Sea oil companies might help maintain employment and also steal a tiny bit of thunder from the Scottish National Party.
8. Keep an eye on pensions contributions
Tax relief on pension savings is expensive, and it's also pretty generous, particularly for those on higher incomes. The chancellor might want to get rid of the 45% income tax rate at some point. But he's unlikely to do that ahead of an election. He could instead cap pension contributions tax relief at 40%, rather than 45%. That would steal a bit of Labour's thunder, but could also be spun as an implicit promise to ditch the 45% rate altogether come the next parliament.
9. If it smells like tax avoidance, forget it
Financial writers have to be really careful not to mix up tax avoidance and tax evasion the first is legal, the second isn't. But as chartered accountants Baker Tilly note, everything points to "the line of distinction between legal avoidance and illegal evasion being erased". Expect harsher guilty until proven innocent' penalties designed to put people off using any scheme that looks remotely like loophole-exploiting.
That's what we reckon Osborne will be looking at in his Budget but what would you like to see him do? Give us your answers (keep it civil!) in the commentsbelow.
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