Commenting on George Osborne’s ninth budget next Wednesday, Brewin Dolphin believes it is the one where he is likely to lay his claim as the next Conservative party leader.
As it is looking less likely that the government will achieve a budget surplus, the firm thinks that it will need to make cuts or raise extra revenue from somewhere, so the Budget could contain some surprises.
Brewin’s head of research, Guy Foster, says: “Whereas in previous Budgets the Chancellor has relished the opportunity to seize the middle ground from Labour, the question now is will he go on the attack against the eurosceptics to show his leadership ability or placate them (with promises on inheritance tax and pension tax relief), in the hope of having their support when he needs it? The Budget offers us the first opportunity to find out. Expect the usual discussion of the UK’s relatively strong economic performance, but with some reference to the benefits of membership of a substantial trading block.”
Brewin Dolphin has prepared a list of measures it thinks might come up in the budget.
Despite the Chancellor’s widely reported shelving of plans to overhaul pension tax relief, he could still announce other changes to pensions in next week’s Budget.
The lifetime allowance, which is already due to be reduced from GBP1.25 million to GBP1 million from 6 April 2016, could come down further.
However, with the challenge remaining to get people to save more into their pensions, further cuts to the annual allowance may be less likely in this Budget. The GBP40,000 allowance is already scheduled to shrink for those earning more than GBP150,000 from 6 April 2016.
Liz Alley, divisional director of financial planning at Brewin Dolphin, says: “We agree that the Chancellor shouldn’t rush to overhaul the tax relief structure for pensions, but this is likely to be a stay of execution rather than an end to the constant change that has afflicted pensions.
“With allowance changes already due to come into force next month, additional tweaking in the Budget cannot be ruled out.
“Many people do not understand the impact of the changes on their own retirement saving, which is why it remains so important to take advice.”
2. Tax thresholds
Everybody can earn GBP10,600 a year before paying any tax – this is due to rise to GBP11,000 next tax year and GBP11,200 in 2017/18. However, we may see delays in this to save money. Similarly, higher-rate tax kicks in at GBP43,000 next tax year and then GBP43,600, but it may rise more slowly, allowing wage growth to lift thousands more people into the higher-rate tax bracket and increase revenue for the Chancellor.
Given the Chancellor is short of money, he may be forced to revisit previous pledges on IHT. He has already announced that, from April 2017, the nil-rate band will be expanded for the main residence, adding to the existing GBP325,000 nil-rate band per person that applies to all assets.
From April 2017 an additional nil-rate band is being introduced and will start at GBP100,000 per person when a residence is passed on death to a direct descendant reaching GBP175,000 per person by 2021. Taken together, that means a married couple or registered civil partnership could have a joint allowance of GBP1 million to use to pass down their property to their beneficiaries.
However, fiscal worries could mean that the amount of relief actually given is reduced, or spread over a longer introduction period to limit the cost to the Treasury. While a million is a large headline number, the joint allowance refers to property only and not the entire estate. The UK has over 600,000 properties worth over GBP1m and even modest property price inflation may tip more into this bracket. Brewin Dolphin writes that many more people than before will find themselves needing estate planning and we urge those to seek advice now.