In the previous months, there was much comment from the Government that it was too soon to focus on tax cuts given their promise to halve inflation. However, in recent weeks the speculation grew that tax cuts would be considered and even that Inheritance Tax (IHT) may be abolished. This speculation was fuelled further by the announcement a week ago that the Government had halved inflation to 4.6% and this prompted the calls for tax cuts, which outside of National Insurance were not delivered.
Income taxes
In terms of income tax, the thresholds remain frozen until 2028 and so fiscal drag, the additional tax the Government will collect as wages rise but tax thresholds remain the same, which will mean that everyone will pay more tax in the future. It is estimated that despite the National Insurance cuts the country is still on track for record levels of taxation not seen since the end of World War Two.
Capital taxes
In recent weeks there were suggestions that IHT should either be scrapped, or the rate cut either to 30% or even 20% on estates that are affected. The tax raises around £7bn and so if the Chancellor had scrapped the tax, it would have made a large hole in the additional funds the Government had because of the headroom they had due to the borrowing figures being better than expected.
However, the Chancellor and the detailed documents that followed his announcements made no comment on IHT. In terms of Capital Gains Tax there was also no change, although none was expected. It always seemed unlikely that IHT would be scrapped whilst we remain in a higher inflation environment with people continuing to struggle, and so my view it is likely to be demoted to a manifesto pledge or consultation at some point in the future.
If you would like to talk through how these announcements affect you, then please get in touch.
