- 15th November 2017
- Posted by: Suzy Hill
- Category: Budget News
Andrew Cowe, Brearley & Co Tax Manager, outlines his predictions for Budget 2017
Regardless of political persuasion, few would disagree that the Chancellor is facing a difficult balancing act. We are still borrowing more than we raise in taxes, limiting the scope for the tax cuts or spending increases that, in an ideal scenario, people would like to see. That said, there are certain measures which could be taken, which could stimulate growth in what remains, unfortunately, a very sluggish economy.
One area which could see a change is Stamp Duty Land Tax (SDLT). Do not be surprised if this is cut, but for 1st time buyers only, in a bid to appeal to younger voters who voted largely for parties other than the Conservatives in this year’s General Election. We already have a different rate of SDLT for purchasers who already own a property, and further changes could be implemented, to make it easier for young people to access the housing market, and to try and boosts the currently slowing market generally.
On the subject of property, watch out for measures to simplify the planning process. Mr Hammond could give the construction industry a boost by freeing up green belt land, especially in areas where there is a particular need for affordable housing.
No Budget these days would be complete without speculation that there will be cuts to pension tax relief and/or the Lifetime Allowance (the maximum fund an individual can build up without suffering a tax charge). Such speculation has proved wide of the mark in the past, and whilst it cannot be discounted, I suspect that this will be left alone again, if for no other reason than political expediency.
Mr Hammond may well curb the tax breaks available to investors in the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCT). These investments offer income tax and capital gains tax reliefs to taxpayers prepared to help fund higher risk start-ups, the inherent risk in these types of companies being exactly why the government offers tax incentives to potential investors.
However, it has been argued that many of these investments are actually made in property backed companies, which in reality carry a much reduced risk, effectively defeating the purpose for which the funds were set up. Whether that is actually true or not, watch out for these tax breaks to be ‘reigned in’ somewhat. This could mean a reduction in the level of income tax relief (which can be as high as 50%, currently), a restriction in the types of industries which qualify for investment, or both.
It is unlikely that these tax reliefs will be withdrawn completely, but expect to see a more targeted regime emerging after the Budget, effectively seeking to ensure a genuine commercial risk is suffered in return for the tax relief reward.
Mr Hammond is under considerable pressure to scrap a 4% rise in Business Rates planned for next year, described by some in the business community as the ‘tipping point’ for the economy ahead of Brexit. I would expect to see a climbdown on this, and he may go further, with an actual reduction targeted at firms which invest to offer apprenticeships or other training to address skill shortages.
With all the publicity surrounding Uber and the ‘gig economy’ watch out for legislation to tighten up on who can and cannot be classed as self-employed. In particular, I expect an announcement regarding IR35, the legislation which seeks to prevent individuals, who are basically employees, from manipulating their tax liabilities by offering their services through a company. Legislation is already in place for changing IR35 rules in the public sector, and I would expect an announcement extending the new rules to the private sector in this Budget.
A few predictions, which may or may not come to fruition, are:-
- An increase in the rate of Capital Gains Tax (CGT), perhaps to equalise the rates paid on all other assets with those paid on residential property (i.e. from 20% to 28% for a higher rate taxpayer).
- A rise in the tax due on dividends, probably via a further cut to the amount taxpayers can receive tax free. Last year this was reduced from £5,000 to £2,000, but could be cut further.
- A rise in National Insurance for the self-employed, to bring it closer to the levels paid by employees.
- A rise in the tax-free personal allowance from £11,500 to £12,000, taking more of the lower paid out of income tax altogether. Again, the Chancellor would hope to appeal to younger workers with this measure
All of the above is, however, conjecture. Despite various leaks and rumours, some of which are clearly intended to gauge voter reaction, no-one truly knows what Mr Hammond will reveal when he finally opens the famous Red Box. All we can hope for is a set of measures which, taken as a package, will stimulate the economy and chart a course towards growth and recovery.
Andrew Cowe, Tax Manager – Brearley & Co