Today marks the last Budget speech that Chancellor Philip Hammond will deliver before Brexit.
Given the timing, there has been a lot of focus on what the Chancellor will or will not be able to say, due to the continued uncertainty around the UK’s withdrawal from the European Union.
But before we get bogged down in Brexit implications, it’s worth looking at where Hammond might have room to manoeuvre when it comes to policy around pensions, tax and savings, and the areas planners will be keeping a close eye on.
The Budget signals the annual speculation about changes to pension tax relief. A House of Commons briefing paper published earlier this month neatly sets out the current debate around pension tax relief reform, and the options on the table.
The Government launched a consultation on this issue in July 2015 examining the three options for reform: a move to a flat rate of tax relief, a taxed-exempt-exempt (TEE) model where pension contributions come out of taxed income and withdrawals are tax-free, and retaining the status quo but with changes to the lifetime allowance and annual allowance.
The Government said there was no consensus on reform in March 2016, and despite the Treasury select committee pushing for changes to pension tax relief earlier this year, just two weeks ago the Government reiterated this stance, saying “no consensus for either incremental or more radical reform of pension tax relief has emerged since the consultation in 2015.”
Against this backdrop pension commentators are braced for more moderate changes such as a reduction in the £40,000 annual allowance, or changes to the tapered annual allowance for higher earners. Calls for the unpopular lifetime allowance to be scrapped to date continue to go unheeded.
Away from pension allowances, reports have suggested the Treasury is planning to examine ways that defined contribution pensions can fund ‘patient capital’ investments.
A feasibility study has been tipped to be announced alongside the Budget. It would build on the Government’s earlier work as part of its Patient Capital Review, which looked at how growing, innovative firms could access long-term finance.
Tax and savings
The Office of Tax Simplification (OTS) has been carrying out a review of inheritance tax (IHT), split into how to simplify the tax from an administrative and technical point of view. Findings on the administrative element are expected shortly, with the technical part due in the new year. The Budget may touch on this, but significant change will only come once the OTS review is published in full.
One proposal that planners with landlord clients will want to hear more on has been put forward by the think-tank Onward. It is notable because Onward director Will Tanner advised Prime Minister Theresa May between 2013 and 2017.
The idea is that buy-to-let landlords who sell to long-term tenants who have lived in the property for three years or more would be eligible for 100 per cent relief on capital gains tax. The gain would then be split between the landlord and the tenant, providing a tax incentive for landlords and a boost to the tenant’s deposit.
Other suggestions for Budget tax changes include simplifying the way savings income is taxed, a financial transaction tax, freezes to the personal allowance (currently set at £11,850) and the £46,351 threshold for the higher rate of income tax.
The other B-word
Clearly, much of the Budget focus will be overshadowed by that other dominant B-word, Brexit. The Office for Budget Responsibility, which provides independent forecasts on UK growth and borrowing, said in March it expects UK GDP growth of 1.5 per cent this year, 1.3 per cent in 2019 with a slow pick-up in growth by 2021.
It will provide updated figures later today, but has already said the Brexit withdrawal agreement when it comes may not be detailed enough to update its forecasts.
It may be that Hammond will deliver another Budget-style financial statement when a deal is announced. In the meantime, he will likely concentrate on short-term announcements today, and return to the question of longer-term tax and spending decisions when he is better placed to do so.
The Budget will take place at around 3.30pm. For live updates on Twitter, you can follow us @nucleuswrap. You can also look out for technical analysis of the big Budget announcements from our in-house and external experts later this week.