With the Spring Budget 2024 just around the corner, there is much speculation about the tax changes and announcements that may be on the horizon. A general election is looming, and the Chancellor’s speech on Wednesday, March 6, is likely to be the last fiscal event before voters head to the polls.
For this reason, we might expect to see short-term rate cuts and headlines aimed at turning the heads of voters, but there is a lot of speculation around the headroom available to cut taxes.
Jeremy Hunt had been hoping for space in the budget to lower the tax burden without cutting spending, but as the Government’s borrowing costs have risen over recent months there is now thought to be less ‘fiscal headroom’ than previously expected.
This limits the Chancellor’s options, but with the Conservatives behind Labour in the polls, with many other attempts to boost support exhausted, and the UK now officially in recession, it is likely that the Government will promise as many giveaways as it can, in the hope that a sugar rush of tax cuts lifts the economy and therefore chances of re-election.
Tax cuts for businesses and individuals?
For businesses, we do not expect a reduction in Corporation Tax and, given that “full expensing” for capital expenditure was made permanent in the Autumn Statement, we also don’t anticipate any further changes to capital allowances for businesses.
We hope for more clear guidance on the merger of the R&D schemes announced in the Autumn Statement, which is proposed to commence from 1 April, 2024.
‘Stealth tax’ has been very publicly condemned, but it would be incredibly costly for Mr Hunt to significantly alter the income tax bands (which are intended to be frozen until 2028), particularly after he announced the reduction in National Insurance Contributions (NIC) for employees from 12% to 10% last autumn. There is, however, speculation he is considering a further cut to NICs.
Richard Cole, Future Money Fund Manager, comments: “Investors will be watching the Budget with interest and any tax cuts or supportive fiscal policies are likely to be well received. A caveat to this would be if Jeremy Hunt’s announcements were deemed unfunded and reckless, in which case markets could show their disapproval in a similar style to the turbulence that followed Kwasi Kwarteng’s disastrous mini-budget of September 2022. While a possibility, this seems an unlikely outcome given the more orthodox and market-aware style of Jeremy Hunt and Rishi Sunak. More likely are minor tax cuts, which will be funded with promises of reduced spending further down the line (after the election, importantly).
“Any meaningful stimulus that does come through will likely give UK equities a boost, if the sums don’t add up and markets sense a hint of Kwarteng and Truss then UK gilts and pound sterling could face a challenging time.”
Pensions and savings
It seems unlikely that we will see any major pension changes, following a period of significant change in recent months (some of which is not yet embedded).
Justin Rourke, Head of Advice, Armstrong Watson Financial Planning, says: “The focus here is likely to be on the benefits already agreed such as the abolition of the pension Lifetime Allowance tax and the increase in annual input allowance. There may be a move away from the ‘triple lock’ towards a less generous concept that underpins the Government’s commitment to increase State Pension, meanwhile, the suggested ‘pot for life’ pension reform, announced in the autumn is likely to take a back seat as it was met with concern amongst various professions..
“The savings and investment sector has suffered in fiscal announcements as the significant reduction on Capital Gains Tax (CGT) and dividend allowances and exemptions will drag many private investors into the self-assessment tax arena but the chances of changes to CGT or dividend allowance or exemption are slim.
“ISAs are often the subject of speculation. It seems no increase to the allowance is likely, but a reform of the complexities of the lifetime ISA is a distinct possibility.
“While Inheritance Tax (IHT) is a favourite topic of budget speculation for many, with the rumour mill swinging from a complete abolition to a minor amendment, it seems unlikely that a major change (to the threshold, tax rate or nil rate band) will take place. Any changes will probably be tinkering around the edges, with the Chancellor seeking a balance to reward those taking the risks of running a trading business or agricultural operation, through adjustments to Agricultural Property Relief and Business Property Relief.”
As ever there will be much detail released after the headlines are digested and this is really where we find out how the announcements could impact businesses and individuals across the country.
Watch our Spring Budget Analysis Webinar. Experts from our tax, financial services and accounting teams will look at the implications of the announcements and review the markets’ reaction.
