WHAT TAX ANNOUNCEMENTS WILL BE MADE IN THE SPRING BUDGET?

Clients will no doubt be hopeful of major tax cuts from the Conservative government alongside schemes to improve economic growth. Little is certain, but we do have some strong indications on the following:

INHERITANCE TAX MAY BE ABOLISHED ALTOGETHER

Inheritance Tax (IHT) is currently levied on the estates of certain deceased persons as well as on certain lifetime gifts. IHT applies to the value of an estate that exceeds a specified nil-rate band. The IHT tax rates range from 0% to 40%, and the tax is calculated on the total value of the estate, including:

• Property
• Money, and;
• Possessions

Lifetime gifts may also be subject to IHT, especially if made within seven years before the individual’s death. Whether on death or as a result of a lifetime transfer, certain exemptions and reliefs may apply in the calculation of IHT.

It is certainly an unpopular tax, although it is reported to affect just 4% of estates.

Rumours are rife that abolition of the tax would be an election-pleasing policy (and we can certainly see it would constitute tax simplification!) but the Conservative party is downplaying the idea.

INCOME TAX THRESHOLDS TO BE INCREASED

Income tax bands may be increased for the first time since April 2022, releasing UK taxpayers from ‘fiscal drag’.

The personal allowance has been set at £12,570 since the 2021/22 tax year, with further reductions for those with income above £100,000.

Similarly, the basic rate band has been fixed at £37,700 since 2021/22 and, for additional rate taxpayers, the additional rate band actually reduced from £150,000 to £125,140 in 2023/24.

With these bands currently frozen in place until April 2028, earlier application of inflationary increases would benefit all UK taxpayers and be a welcome pre-election measure.

We must note that alternative bands apply to non-savings income in Scotland.

INCOME TAX RATES

Building on the reductions to National Insurance Contributions (NICs) announced by Jeremy Hunt in the Autumn Statement, we may see a reduction in income tax rates in the Spring Budget. The Conservative party has previously signalled a path to reducing the tax burden, and the electorate’s desire for income tax cuts is well understood.

Income tax is currently assessed at 20% within the basic rate band, 40% in the higher rate band, and a top additional rate of 45%. Alternative rates apply to saving and dividend income and to income earned by Scottish taxpayers. Most likely is a 1-2% reduction in the basic rate of income tax.

MAKING TAX DIGITAL FOR INCOME TAX

Some headway was made in the Autumn Statement but the consensus in the accounting profession was that the government had not gone far enough in the adaption of the reporting rules as we approach the April 2026 start date.

RAISING THE VAT THRESHOLD FOR ECONOMIC GROWTH

It’s widely believed that raising the registration threshold for VAT would positively impact economic growth. Some businesses take measures to keep their business turnover below £85,000 to avoid the need to register for VAT. This threshold could therefore be seen as a barrier to growth in UK business. Having been set at £85,000 since 1 April 2017, an increase would seem likely.

INDIVIDUAL SAVINGS ACCOUNT (ISA) LIMITS

Picking up on a rumour from November 2023 that did not come to fruition in the Autumn Statement, we may well see an increase to the main £20,000 annual ISA saving limit (and other ISAs) to encourage and reward savers.

PENSIONS

It seems certain that we’ll hear more about pension reform to ensure better outcomes for savers, including the proposed lifetime provider model to avoid individuals building up multiple small pension pots as they take their careers through multiple employers.

SIMPLIFICATION OF CAPITAL ALLOWANCES

As introduced at Autumn Statement 2023, we may see measures to simplify the UK’s capital allowances legislation. With full expensing for companies and wider application of cash accounting for self-employed people already underway, this may not however grab the desired headlines.

FUEL DUTY

A temporary 5p cut in fuel duty is due to come to an end on 23 March 2024. The 6 March Budget may extend the cut and/or address inflationary increases to the duty that are also soon due to be imposed.