George Osborne's emergency Budget has been pretty well trailed.
Here's what we know we will get tomorrow, what we might get, and what we would like to get.
What we know we will get in the emergency Budget
Inheritance tax (IHT)
Osborne has plans for a new, more-than-usually complicated IHT allowance on what he calls "family homes". The original idea was for the IHT allowance of £325,000 per person to be topped up by an extra £175,000 on whatever house the newly deceased had been occupying on their death.
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We, and countless others, immediately pointed out that this was one of the most stupid ideas we had ever heard, on a par with right-to-buy. Not only is there no conceivable justification to treat one kind of private asset differently to all others for IHT purposes, but to do so would just encourage the elderly to bed-block' large houses until their deaths, so as to use the exemption to the max.
That's the last thing the housing market needs. And Osborne has apparently listened to these concerns. However, we understand that instead of dumping the policy, he has decided to complicate it, using some kind of carry-over that will allow people to downsize, and still keep the allowance relating to their larger house, until their death.
I have no idea how this will work, or why anyone considers it a good idea to even start with the admin (just for good measure, there are apparently plans to taper this down from £2m). Personally I'd abolish IHT and replace it with a gift tax. But if the government is so keen on raising the allowance, why not just raise it and be done with it?
Pension tax relief
We also know that Osborne is planning to slash the pension tax relief for anyone earning over £150,000, so that by the time they are earning £220,000 they have a mere £10,000 of relief left. This sounds OK in theory but it isn't.
It is unkindly discriminating it takes no account of how long people earn large amounts of money for. Often, £150,000-plus is a level people hit for just a few years in their late 40s or 50s and one they use to attempt to fill their pensions after the high-cost years of child rearing.
But the attempt to constantly show that the rich are being got at one way or another is nothing on the complications introduced by this scheme. Most people on that kind of salary will be partly paid by bonuses, or, in the case of partners, profit shares. So they are highly unlikely to know in advance what their earnings in any one year are. So how can they plan their pension contributions?
It's just silly. About as silly, now I come to think of it, as the appallingly stupid Lifetime Allowance rules (more on those here).
Right to Buy
We can also assume that we will hear more on the ludicrous business of extending Right toBuy to housing associations. I can't bear to think about this any more. Please see my previous article on the matter.
Tax credits
We have written about the distortionary effect of tax credits on the UK economy. And I suspect that Osborne fully understands that they are responsible for much of the productivity failure in our economy.
He also understands the argument we have been making for some five years about the manner in which the welfare state subsidises the profits of all companies in the UK, by topping up the crappy wages they pay. So it makes sense to expect some serious caps on working tax credits.
Given that the current system can see part-time workers with families earn' significantly more than full-time workers, a degree of reform seems an excellent idea. Ideally, combined with a rise in minimum wage or another rise in the personal allowance.
What we might get
The lump sum
One pension change under discussion that we might see coming (it is politically tricky) is a cut in the 25% of a pension that you can take tax-free on retiring. Now we have pensions freedom, this doesn't make sense any more. It is very expensive (around £4bn a year) and why should money that has been saved 100% tax free also be drawn down 100% tax free? It should go. If it does, I'd call it a 1/5.
Capital gains tax (CGT) on homes
One possibility that has also been discussed has been the removal, or at least the capping of the CGT allowance on primary homes. I've written about this before. I think that as long as stamp duty is abolished at the same time it is a good idea. The fact that houses come CGT-free for most of us is one of the things that encourages us to over-spend on property at the expense of other things.
Non-doms
Osborne is known to think that the existence of non-doms is a pointless anachronism. There's room for argument on the ones just passing through the UK, but he is 100% right on the 800 people in the UK with inherited non-dom status. They should lose this special tax status.
But here's the thing: most inherited non-doms I have spoken too would heartily like not to be non-doms any more (it is expensive and makes their investing lives tricky). But there is no system for them to use to bring their money home without it being taxed to oblivion.
So it seems to me that if Osborne were to abolish their status and allow them to normalise the status of their assets in exchange for a one-off small-ish levy of say 4%-7%, everyone would be happy-(ish).
Buy-to-let
I don't think it will be top of Osborne's list but there is a chance that he has been listening to the arguments for the abolition, or at least capping, of tax relief on the interest on buy-to-let mortgages.
There has a been quite a row about this among our readers over the last few months but there is little doubt that preferential treatment for buy-to-let mortgage holders affects the ability of residential buyers to get into the market. So Osborne might have a go at that.
What we'd like to get
Simplification, simplification, simplification
There are over 80 IHT reliefs. Why? Get rid of them. Then look at income tax and National Insurance. They are the same thing, so they should be treated as the same thing and everyone should know that the basic rate of income tax in the UK is 32%. Same goes for pensions, every other kind of savings taxation, and business taxes too. Osborne could just get this stuff done while he has the support to do so.
The problem of debt
I have written before about the bonkers way in which the UK tax system incentivises everyone to take on debt be it buy-to-let mortgages or corporate debt to buy back shares. We subsidise debt over equity, which makes no sense when we know how destabilising large levels of debt are.
It isn't high-debt firms (or people) that survive crises. It is low-debt firms (and people). A limit on all interest deductibility would be a very good idea there is an excellent column on this in this week's issue of MoneyWeek magazine, out on Friday (if you're not yet a subscriber, get your first four issues free here).
A limit on all income allowances
Osborne had a go at this one back in 2012. He wanted to cap the amount that anyone could claim against their income tax on (in interest, gift aid and the like) at £50,000. He was shouted down by every vested interest in the book.
He should have another go, and extend the cap out to even more reliefs than he wanted to last time around if he can't get rid of the complications and allowances in our system, he should at least cap the way they are exploited.
In short, if he approached his budget with a view to simplifying what he can and capping the rest, MoneyWeek would be impressed. You don't get that often.
That's our take now it's your turn. Let us know what you'd like to see in the Budget. You can comment below, or send your views to haveyoursay@moneyweek.com. We'll publish the best on our readers' blog here.
