Spring Budget 2017: what to expect

Reporter, Accountancy Daily [2016-2019]

6 Mar 2017

This Wednesday marks the last ever spring Budget where Chancellor Philip Hammond could address anything from a raft of new tax changes to a review on existing initiatives, with accounting firms making their own predictions on what could and should be included

It has previously been predicted that the spring Budget could be relatively quiet this year as the government begins its preparations for Brexit and with lots of tax and pension reforms coming into place from April. Not to mention HMRC’s plans for a quick implementation of Making Tax Digital which will affect the majority of businesses, landlords and self-employed.

Lifetime ISA

The new lifetime ISA starts April 2017 which aims to support savers throughout their lives until the age of 50 through a tax-advantaged savings account. Residents under the age of 40 will be able to open a Lifetime ISA, saving up to £4,000 per tax year in their accounts until the age of 50. The amounts paid into an account will be eligible for a 25% government bonus.

Genevieve Moore, partner at Blick Rothenberg suggests that the Lifetime ISA should be extended to people over the age of 50 so that they can still open an account and help save towards their retirement. Also, that government should reintroduce tax relief on mortgage interest but only for first time buyers of properties under £450,000 in London and £250,000 elsewhere.

Tax relief on pensions should be reduced to further align pensions with the ISA regime. Steven Dicker, pensions partner at PwC said: ‘With full tax relief already limited to contributions of up to £40,000, and only £10,000 for the highest earners, it would seem on the face of it that there isn't much more to go for. But total tax relief on pension contributions is still very substantial and with the ISA limit ever increasing, now might be the time that these two long term savings products move even closer together.’

Pensions

The phased reduction of the pension annual allowance should be stopped as people need to be encouraged to save for the future and not become reliant on the state pension.

The cost of tax relief on pensions is still running to tens of billions a year despite restrictions so it is likely that the Chancellor could cap the amount that can be drawn from pensions tax free at retirement.

David Fairs, pensions partner at KPMG said: ‘We know that the government is continuing to eye further changes to the tax regime for pension schemes. However, what we don’t know is whether this will involve sweeping changes – along the lines of the pensions ISA mooted in the 2015 Treasury green paper – or just further tinkering with existing allowances.

‘Overall, we would welcome a period of stability for pension schemes – but that is likely to be a vain hope. The likelihood is that, if we don’t have pensions tax measures announced in this Budget, we will get something in the new Autumn Budget.’

Gig economy

The upcoming changes to off payroll workers in the public sector (IR35) is likely to be extended to the private sector in 2018. David Brookes, tax partner at BDO, said: ‘As the changes within IR35 take effect next month, there are reports that contractors are already moving away from public sector contracts.

‘If the private sector was subject to the same tax regime, it would limit the public sector’s “brain drain” concerns while addressing another imbalance in employment tax legislation.’

The tax system is unable to keep up with the increase of self-employed people in the UK, growing by 26% last year. Employment law is too complicated, therefore it has been suggested that the rules on NIC and income tax should be aligned for the employed, self employed and those using personal service companies as this would simplify the tax regime.

Brookes said: ‘Creating a level playing field for all, this would deliver a lasting benefit of simplicity for employers and individuals, and could raise a reported £1bn for the Treasury if NIC rates for the self-employed were increased from 9% to 12%.’

It is likely that the Chancellor will consult on his decision not to align income tax and NIC before committing changes in the autumn Budget.

Tax simplification

According to BDO, tax simplification would be supported by 57% of businesses, even if it meant marginal tax rises.

Only having one budget a year is moving towards tax simplification as it should result in less change for businesses and would make it easier to plan year on year.

Brookes believes the Chancellor should ‘announce a moratorium until 2020 or until Brexit negotiations are finalised (whichever comes first) on any tax changes that do not simplify the tax system. A commitment to simplicity would send a clear pro-business message, allowing the government to focus on Brexit and giving businesses some certainty in uncertain times.’

Property tax

It is suggested by Blick Rothenberg that Hammond should introduce a 20% capital gains tax (CGT) rate on property sales made to first time buyers of homes under £450,000.

Stamp Duty Land Tax (SDLT) and CGT should be scrapped on the sale of land for residential development where the landowners are working to meet targets on affordable housing numbers.

While Blick Rothenburg suggests that the 10% SDLT threshold for houses worth £925k to £1.5m should be increased, PwC believes that we could actually see a small cut to the 10% SDLT rates for properties between these brackets to boost transaction volumes.

Inheritance tax

The Chancellor is expected to make changes to inheritance tax by either introducing the new death levy or by increasing inheritance tax.

As a way of making people contribute more to the cost of care, a death levy has been proposed which will be a compulsory levy taken from people’s estates when they die. First proposed by Gordon Brown in 2010, he considered introducing a 10% levy on all estates in addition to inheritance tax, which is currently charged at 40% on estates above £325,000.

Making Tax Digital

Mandy Pearson, tax partner at KPMG, said: ‘if Making Tax Digital is to commence in April 2018, then an enormous awareness campaign is required to inform the public generally. And we could very well see the Chancellor start this ball rolling by announcing the proposed exemption threshold on Budget day.

‘On the other hand, the recent scrutiny around costs and timetable could plausibly lead to Making Tax Digital being deferred for a year or mandation being dropped. Either way, we do expect that the Chancellor will have something to say on Making Tax Digital come Budget Day.’