Money Street News
  • Please enable News ticker from the theme option Panel to display Post

The next UK Budget will be announced less than four months after the Autumn Statement, during which the government revealed National Insurance cuts, confirmed an upcoming increase in the state pension and upped the National Living Wage.

With a general election set for later this year, the government may be looking for opportunities to cut taxes further – but worse-than-expected news on the economy makes it far from a done deal. 

Rumours have also swirled around potential changes to Individual Savings Accounts (ISAs) and Inheritance Tax. Read on for the latest Spring Budget rumours and predictions.

Spring Budget predictions: What might be announced?

1. Further tax cuts, or income tax thresholds ‘thawed’?

In January, the main rate of National Insurance for employees fell from 12% to 10%, and there was some speculation that income tax could be next in line for a reduction.

But more recently Jeremy Hunt has tempered expectations for Spring Budget tax cuts, while still saying that lowering tax is the right direction of travel. He told the BBC’s Political Thinking podcast that he doesn’t have as much scope for cutting tax as he did last autumn.

Shaun Moore, tax and financial planning expert at wealth manager Quilter, said in an email to NerdWallet that there have been “mixed messages” from the government on income tax cuts or thawing the income tax thresholds, which have remained frozen since April 2021.

Frozen thresholds mean that taxpayers can be dragged into a higher tax band as their salaries increase, said Alice Haine, personal finance analyst at investment platform Bestinvest, in an email to NerdWallet. 

“While consumers would naturally welcome an income tax cut, any change is likely to be muted,” she said. But an increase to the income tax personal allowance, currently £12,570, and the higher rate threshold, currently £50,270, could be a fair option that “ensures everyone gains.”

2. Is a rumoured ‘British ISA’ bonkers or brilliant?

Before the Autumn Statement, there were rumours that the Chancellor was planning sweeping reform to Individual Savings Accounts (ISAs), designed to simplify the system. 

In the event, the only major change announced was that savers can open more than one ISA of the same type every tax year, starting from April 2024.

Ahead of the Spring Budget, however, “talk is back that the government is mulling a British ISA in a bid to re-energise the UK stock market,” said Haine.

The idea behind the British ISA is that savers get a specific account that they can use to invest in UK companies, coming with an extra allowance on top of their usual £20,000.

But the danger is “that investors reduce investments in UK shares within their core Stocks & Shares ISA to compensate for directing funds to them in a separate product,” said Haine. They may focus on using their main allowance first, avoiding UK investments until they can use their extra one – the reverse of what Hunt may hope to achieve.

What’s more, not many people can maximise their £20,000 allowance in the first place. According to HMRC, only 15% of ISA subscribers saved at the maximum in 2020-21. 

Against the backdrop of ISA changes starting in April, a new product with a new allowance would risk making ISA saving more complicated, said Haine.

3. Plans to support first-time buyers

The government is reportedly mulling ways to support first-time buyers. A scheme that allows first-time buyers to snap up a property with just a 1% deposit, with the government guaranteeing their mortgage has been rumoured. UK Finance has called for a new Help to Buy scheme, so an idea like this could fit the bill.

However, the experts we’ve spoken to believe making changes to the Lifetime ISA (LISA) would be a better place to start.

The government could update LISA allowances, which have remained the same since the programme launched in April 2017. Savers are limited to putting no more than £4,000 into one each year, with the government contributing a 25% bonus to their savings. Additionally, a LISA can’t be used to buy properties costing more than £450,000 – a particular problem for those in London, said Haine.

There may even be easier ways for the government to be clearer about how to save for a home deposit. “One simple but effective step would be to rename the Lifetime ISA to a ‘First Home Account,’” said Moore. He suggests this would better point savers towards its benefits.

Finally, Moore thinks the government could consider removing the early access charge, which punishes savers if they need to withdraw money for reasons other than a property purchase or retirement. He believes it should be altered so that savers only lose the government bonus and not a portion of their own savings too.

4. Inheritance Tax reform may be kicked further down the road

The government was reportedly considering reducing or abolishing Inheritance Tax (IHT) altogether before the Autumn Statement, but changes failed to materialise in the Chancellor’s announcement.

Moore said that because IHT impacts “only a small fraction of the population,” the Conservatives may have realised that drastic change may not resonate with many voters.

Haine agreed, saying that IHT changes won’t boost household finances in the short-term: “Something very much needed for those scarred by the effects of the cost-of-living crisis.” She thinks it’s more likely Inheritance Tax reform will rear its head in the Conservative’s election manifesto.

Ipsos polling from July 2023 does suggest that the British public sees IHT as one of the most unfair taxes, alongside council tax and fuel duty. 

While wholesale abolition looks unlikely, “IHT in its current form warrants change to better serve a modern and equitable society,” said Moore.

For example, the government could increase the nil-rate band to £500,000 for individuals and £1 million for married couples and reduce the number of people caught by the tax, he said. 

Expect more rumours and speculation

Predictions and rumours often heat up the closer we get to the Budget, so keep your eyes peeled as we near the announcement on Wednesday 6 March.

We’ll be covering the Spring Budget and analysing what it means for you and your money, so save the date and check back for our in-depth guide after the Chancellor’s statement.

Image source: Getty Images

Dive even deeper

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *


Get our latest downloads and information first. Complete the form below to subscribe to our weekly newsletter.

No, thank you. I do not want.
100% secure your website.