Yahoo Finance The tax cuts that could offer a lifeline to cash-strapped UK families
Two years of the cost of living crisis has taken a horrible toll on our finances. The cost of food and non-alcoholic drink alone has shot up by a quarter, leaving us with far too much month at the end of the money. Meanwhile, higher interest rates mean anyone who has faced a remortgage in the past year or so is now wrestling with much higher monthly bills.
We need all the help we can get at a time like this, and with the Spring budget on the horizon, UK chancellor Jeremy Hunt has an opportunity to ease the pressure with some well-targeted tax cuts.
The government has spent the last few days pouring cold water on rumours that we’re set for massive changes, but even small tweaks could make a significant difference.
1. Income tax or NI cut
Initially the government floated the idea of a 2p income tax cut, but given the cost involved, we might get a 1p cut instead, and Hunt might choose to cut national insurance (NI) rather than income tax, on the grounds that it’s cheaper.
This would be good news for millions of taxpayers — putting money back in our pockets when we most need it.
Read more: Why tax cuts in 2024 might not leave you paying less
However, the biggest benefits would be reserved for higher earners.
2. Income tax thresholds move
If Hunt decided to unfreeze tax thresholds — including income tax — it would be a huge surprise.
However, the option is still open. Given that this freeze has already raised far more money than was originally intended, the government could decide to put an end to it, so tax thresholds could start rising with inflation again.
3. High income child benefit charge change
At the moment, once one parent earns £50,100, they have to start paying any child benefit back, and once they make £60,000 they need to return it all. It’s why the effective tax rate between these two figures is 60%.
One in eight families are hit by this now, so the government could move the threshold to reflect inflation in the interim, and lift millions of people out of this tax bracket.
4. Capital gains tax and dividend tax thresholds hold
The capital gains tax and dividend tax thresholds are set to be halved again in April, taking them to miserly levels (£3,000 and £500 respectively), and making it incredibly difficult for investors and entrepreneurs to plan tax-efficient income and gains outside an ISA or pension.
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The government could decide to halt this cut, easing the pressure, and encouraging more investment in the UK.
5. Stamp duty cut
Cutting stamp duty on property has been floated as a potential way to boost the housing market — especially for first time buyers.
It’s not straightforward, because we’re in the middle of a stamp duty holiday at the moment, but it would be good news for buyers.
6. Fuel duty cut
There won’t be much of a reaction if Hunt keeps the 5p fuel duty cut that was meant to be temporary, or if he freezes the fuel duty instead of hiking it as scheduled.
However, if he doesn’t do either, it’s going to hit motorists hard, and leave a large number of voters out of pocket.
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It means the government may have little alternative than to keep duty where it is for now.
7. Inheritance tax cut
This idea has been floated before every major budget and Autumn statement for a while, and this time there were suggestions there would be a cut to the main rate.
This would only affect a very small number of the wealthiest people, because inheritance tax is only paid by around 4% of estates.
However, for these people, it would make a big difference to what they could pass to younger generations.
Watch: Minister insists any budget tax cuts will be ‘responsible’
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