Yahoo Finance What to expect from Budget 2018: cuts to pensions, boost to inheritance tax allowance
On 29 October Philip Hammond will stand up and deliver one of the most crucial Budget statements in recent memory.
In the last major fiscal announcement prior to Britain's withdrawal from the EU, the Conservative Party is aiming to boost the economy while heading off a resurgent Labour opposition uniting behind Jeremy Corbyn's populism.
As always, Westminster is rife with rumours and speculation over the contents of the famous red briefcase. Telegraph Money has rounded up the runners and riders.
Pensions slashed
Likelihood: 8/10
Earlier today, the Daily Telegraphrevealed the Chancellor is aiming to meet his NHS funding pledge by slashing the generosity of incentives on pension savings.
Most people can save £40,000 a year and £1.03m over a lifetime. The tax system encourages saving into a pension offering "tax relief" based on the saver's marginal rate. That means it costs a basic-rate, 20pc, taxpayer £80 to make a £100 contribution and a higher-rate, 40pc, just £60.
That means the vast majority of tax the Treasury forgoes is claimed by wealthier savers. For years, pension companies have warned the axe is about to fall on these perks.
The Government's options are to reduce the annual allowance further (perhaps to £30,000) or lower the threshold of the so-called annual allowance "taper". Currently, this kicks in once you earn over £150,000 a year.
Cuts to the annual allowance have already been accused of increasing NHS waiting times as consultants cut back their hours in response. Groups from many other public services including firefighters and the army have also united to protest the impact of slashing the annual allowance.
Mr Hammond could decide to cut the overall cap on savings but this is less likely given it only went up to £1.03m in April this year.
Finally, there's the nuclear option: scrap the whole model of tax relief and replace it with a single rate no matter your income-tax bracket.
Boost to inheritance tax gifting rules
Likelihood: 7/10
A rewrite of rules surrounding inheritance tax is highly likely. The Government commissioned the Office for Tax Simplification to review Britain's most hated tax early this year.
The OTS’s findings are due to be published in Autumn, right in time for the Budget.
Some have suggested that rules on gifting assets could be drastically simplified, with the introduction of a larger, single annual allowance.
The rules on IHT exemptions for smaller amounts have not changed since 1986. You can still only pass on £3,000 a year. You can carry over the exempt amount up to £6,000, but must make the gift in that year. Larger amounts can also be gifted without incurring tax, but the person making the gift must survive the gift by seven years to qualify for exemption.
Further caveats and rules on “taper relief” mean gifting is not always as simple as it first appears. It has been suggested an annual single gifting allowance of £10,000 would be simpler and fairer. However, the Chancellor needs to raise money and raising IHT allowances will not help him do that.
Push ahead with new probate fee “death tax”
Likelihood: 5/10
Last year the Government announced it was pushing through a radical change to probate fees, scrapping the flat-fee and introducing fees based on a sliding scale relative to the value of your estate.
Currently it costs £215 to apply for probate, or £155 for solicitors. The new system would charge larger estates worth over £2m £20,000 for the legal permission, while estates worth over £1.6m would pay £12,000. Estates worth less than £50,000 would pay nothing.
The proposals faced fierce criticism when they were first introduced and were put on hold during the EU referendum.
The Government has kept quiet on the issue since, but has informed Telegraph Money that the proposals “will be introduced in due course”.
Yet the intense backlash the proposals first ignited could mean the Chancellor quietly abandons the plan.
Increase the rates on capital gains tax
Likelihood: 5/10
Few chancellors have been able to resist the temptation of tampering with capital gains tax. The rate of CGT has never been so low – 20-28pc for gains on residential assets, and 10-20pc on gains from other assets depending on your income tax status and the size of the gain. Taxpayers currently enjoy an annual exempt amount of £11,700.
While reducing the allowance is less likely, some believe CGT rates could be brought in line with inheritance tax, which could mean CGT charges of up to 40pc for higher earners. A number of wealth managers, including James Hambro and Brooks MacDonald have been actively encouraging their clients to review their portfolios and tax liabilities.
However, as the tax is not applied on gains made from the sale of people’s main homes, CGT is not a huge source of revenue for the Treasury. Mr Hammond's need for large sums may mean this relative minnow is spared.
Are you self-employed? A landlord? Or concerned about your pension? Do you have any predictions hopes or fears for the upcoming Budget? Tell us about them in the comment section below.
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