A variety of industry experts have given their views on what is likely to be inside George Osborne’s red briefcase:
A capital gains tax raid
With pensions tax relief off the table for the time being, the Treasury will be looking at other tax takes to help chip away at the UK’s stubborn deficit.
Even at what are considered some of the most beneficial rates for investors, CGT still provided a tax receipt of almost £5.5bn in 2013 to 2014.
David Smith, director of financial planning at Tilney Bestinvest, pointed out just a 2 per cent increase from the existing 18 per cent for basic rate taxpayers and 28 per cent for higher and additional rate taxpayers, could pocket the exchequer an extra £100m a year.
“Such a move could be extremely lucrative for the chancellor, especially as many buy-to-letters are looking to sell-up in advance of the soon to be imposed stamp duty hike.
“To soften the blow, the CGT allowance (the amount up to which an individual can ‘gain’ without being subject to tax) could be increased, which would appease the masses, but to those with assets of significant worth, family assets held for a number of years or for those with second properties, it could be devastating,” he added.
The Royal Institution of Chartered Surveyors has already called on Mr Osborne to help ‘generation rent’ own their current properties through the reform of CGT and they’ve been on the money about these things before.
Simplifying the annual or lifetime allowance
Other non-pensions tax relief options come in the form of the complex system of annual and lifetime allowances, which already face changes from April that will hit 2 per cent of taxpayers hard by 2019.
Chris Noon, partner at Hymans Robertson, explained this figure translates to between 600,000 and 700,000 people earning £90,000 a year and sometimes less being affected.
Currently individuals can take advantage of any unused pension saving annual allowance from the previous three tax years, known as ‘carry forward’, with the government expected to save £1.18bn by 2019 to 2020 from the April change.
But some think the chancellor could go even further today.
“There is always the risk that the chancellor could scrap carry forward,” warned Mr Noon. “If this happens, the government will save even more and the pain will be felt even more acutely and much sooner.
There is always the risk that the chancellor could scrap carry forward.In terms of simplification, he suggested implementing a capped rate of tax relief set at 40 per cent, to maintain an incentive to save.
“We could then scrap the complex system of annual and lifetime allowances and the chancellor would then have the lever of changing the rate of relief if he was keen to cut the cost of providing it in the future,” added Mr Noon.
Salary sacrificed
Salary sacrifice has also been mooted as something in the firing line, mainly to head off its use by higher earners to overcome the proposed introduction of flat rate tax relief.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said if the chancellor wants to opt for the “full-on smash and grab option” then salary sacrifice and National Insurance are the prime targets.
“He could impose restrictions on salary sacrifice; he could even introduce a tax charge on employer pension contributions.
“Alternatively he could introduce a new National Insurance charge on employer contributions made to pensions of higher earners, in much the same way that those employees earning over the upper earnings limit are currently liable for a 2 per cent contribution.
“There is £15bn up for grabs here and myriad ways he could contrive a new charge without technically having changed pensions tax relief.”
Broadstone’s technical director David Brooks agreed that Mr Osborne may look to amend the savings that salary sacrifice arrangements make – most likely a change to the employer saving or a restriction as to the level of salary sacrifice that can be used; or the annual allowance could be further reduced for everyone from £40,000.
Goodbye to NI
Patrick Bloomfield, another Hymans Robertson partner, said an obvious target to help deficit plugging is the removal of National Insurance relief on employer’s pension contributions, with the government estimating it would raise around £14bn per annum.
“It wouldn’t be a surprising move for a couple of reasons. First, he hasn’t shied away from passing government spending problems on to employers – the most recent example is the living wage.
“Second, using National Insurance is a classic solution to tax raising when there isn’t scope to increase income tax.”
Clearly there are big implications to such a move, admitted Mr Bloomfield. “Businesses would need to prepare to absorb the cost, or they could re-design pensions to accommodate the loss of savings and still give employees an adequate level of retirement income.”
Removing death benefit threshold
Previous Budgets have simplified death benefits taxation, meaning fewer beneficiaries will face a tax charge.
Mr Osborne could have his sights on the area again.
Now that age is the only factor, pensioners are left with a cliff edge at age 75 where benefits go from being tax free to having a charge of up to 45 per cent.
Jessica List, pensions analyst at Suffolk Life, argued that investors cannot understand why age 75 is so significant. “It seems like a pointless barrier that’s been left in place as the legislation has evolved. It would have been much closer to the average life expectancy when it was introduced.
“Investors would be happier if the threshold was reset to be closer to life expectancy and moved in line with life expectancy going forward.”
