Bite-sized predictions: What might the 2016 Budget mean for financial services?
Finding Budget speculation confusing? Not surprising given the plethora of announcements, hints and the occasional kite that chancellors like to fly in the run up to the Budget. Speculation this time around initially focussed on the reforms to pension tax relief. These have now apparently been abandoned due to pressure from many Conservative MPs. The fracas shows how Chancellor George Osborne is keen to avoid major controversies in this Budget, with the Conservatives split down the middle over Europe. But that hasn’t stopped the media, industry and the Westminster bubble speculating on a number of key changes he might make in taxation, savings, pensions, investment and housing. Here’s what the MRM Public and Regulatory affairs team think might feature.
What might be in…
Abolishing the 45% rate of income tax. If this does happen it will very likely be the biggest Budget story. Osborne has been reported as considering it but it would be expensive and politically controversial. Less controversial would be increasing the earning threshold for 40% taxpayers.
Merging national insurance and income tax. In his 2015 Summer Budget Osborne promised a report on bringing the two closer together, which was published last week. But such a move would have enormous implications and Osborne may decide to wait.
Extension of Help to Buy. Currently the Help to Buy scheme runs until 2020. It has been reported Osborne may extend it further than that. Osborne could also make a change to regulation of rents.
Insurance premium tax increase. The 2015 Summer Budget increased IPT to 9.5% and the ABI has warned against a second rise in this Budget. It would be an easy prize for any Chancellor.
Changing the lifetime tax-free allowance limit on pensions. The lifetime allowance will be cut from £1.25m to £1m from April. According to some news reports, the Treasury has consulted on a £750,000 limit- though this is something Pensions Minister Baroness Altmann, long since a champion for savers, may be less happy about.
Announcing more detail on how the main residence allowance on inheritance tax will work from 2017. Osborne may need to tidy up his changes from the last Budget.
Raising capital gains tax thresholds. One suggestion is that these would be raised from 18% and 28% to 20%, 40% and 45%, matching income tax bands.
Tidying up the system on single premium investment bonds for people without a financial adviser and rules around investment income. Those without an adviser have been penalised when they’ve tried from withdraw from their bonds in the recent past, while the rules around investment income change in April to make the first £1000 untaxed for basic rate taxpayers.
…and what probably won’t be
Pensions tax relief reform and “pensions ISAs”. These major changes to the system- creating a single rate of tax relief on pensions and taxing pension contributions when they are made rather than when they are withdrawn- received much attention before the budget. But it has been widely reported that Osborne has abandoned them. However, this is very much something to watch out for in the Autumn Statement or future budgets: the issue is not going away.
Changing the 25% tax-free lump sum allowance on pensions. At the moment the first 25% of pension pots is usually untaxed when they are withdrawn. Changing this would be another major pension reform Osborne will be wary of making following resistance to his proposed tax relief changes.
Putting the pension age up. Given the recent changes to the pension age and the controversy around the women’s pension age it seems unlikely Osborne will attempt this. However it would save huge amounts of money. For example, immediately raising the pension age a year to 66 would save £6.5 billion a year by some estimates.
Reducing the £40,000 tax-free allowance limit on annual savings into pension pots. A limit of £10,000 would be enough for as much as 90% of the population but Osborne is more likely to wait for such a potentially controversial change.
If you are interested in our updates on Budget Day or want to find out more about how we can help, please contact MRM’s Head of Public and Regulatory Affairs Havard Hughes on 020 3326 9916 or email@example.com.