A look into the tax crystal ball

A look into the tax crystal ball

With a General Election due by January 2025 at the latest, we may have three major ‘fiscal events’ this year: The Budget on 6 March, an early Autumn Statement (possibly in September) and (assuming the Election is in the autumn) a post-Election Budget in November or December. What tax changes might be announced and how might they affect you?
Having cut National Insurance Contributions (NICs) in the 2023 Autumn Statement, the Chancellor and Prime Minister have made it clear that we should expect further tax reductions in the March Budget. The options likely to generate the most political benefit are probably any combination of a cut in the basic rate of tax to 19%, a further reduction in NICs or the unfreezing of the higher rate tax threshold (which has been £50,270 for several years, bringing more and more people into the 40% tax bracket as earnings rise). There has also been talk of changing how the High-Income Child Benefit Charge (HICBC) works, so that fewer people with young children will suffer this additional tax charge. Given the state of the public finances (which has caused the International Monetary Fund to say that tax cuts are not really affordable at the moment). We may find that there are tax cuts announced but that they are delayed a year in their implementation.
The contents of any post-Election Budget will obviously depend not only on the economic circumstances at the time but also which party is in power. Labour has indicated that it does not intend to raise the main tax rates on income, but may make major reforms to the capital taxes (and in the process increase the tax collected). Either party could follow in the footsteps of George Osborne in 2015. When he raised extra revenue without raising any of the rates of income tax or NICs. This was done by making changes such as restricting top rate tax relief on pension contributions, restricting tax relief on finance costs for residential landlords and increasing the tax rates on dividends. Jeremy Hunt has already effectively done the latter by cutting the dividend allowance from £2,000 to £500 (which is the new figure for 2024/25). Scotland has different tax rates and bands for non-savings, non-dividend income (e.g. employment income, business profits, rental income and pension income).

The Scottish Budget has already taken place. Among the measures announced for 2024/25 were:

  •  A new ‘advanced’ tax rate of 45% that will apply to income between £75,000 and £125,140.
  •  The top rate of tax (that applies above £125,140) will be increased to 48% (from 47%).
  •  The 19% starter, 20% basic, 21% intermediate and 42% higher rates will be unchanged, along with the higher rate threshold (which is frozen at £43,662, significantly lower than the £50,270 that applies in the rest of the UK).

In this newsletter, we make you aware of recent developments that may affect you or your business, irrespective of the tax uncertainties mentioned above. These include the new National Minimum Wage rates, when it might be worth appealing against penalties for failure to pay the HICBC and (believe it or not) how the VAT rules distinguish between biscuits wholly or partly covered with chocolate and other biscuits! Other topics include a discussion of the VAT rules for cars and how a recent case has clarified the manner in which the Capital Gains Tax (CGT) main residence exemption works when you buy a residence, knock it down and then live in the replacement residence you have built.

It should be an interesting year ahead as far as tax is concerned. We will be here to help you navigate any changes announced. So please contact us if you need further guidance, particularly on topics in this newsletter.

The complete Spring Newsletter can be found here