Ahead of the Thames Valley Chamber of Commerce Budget Breakfast on Friday 30th October, sponsored by Monahans, the firm’s tax specialists have outlined some of the key areas businesses and individuals should be monitoring in advance of the Chancellor’s Autumn Budget.
With the Chancellor’s Autumn Budget fast approaching, the question is no longer whether the Government will look for additional revenue, but where it will find it. Public finances remain under pressure and geopolitical uncertainty is adding to the rising costs – so which taxes could be targeted to raise the much-needed revenue?
Capital Gains Tax
Our first prediction looks at one of the perennial Budget rumours surrounding further alignment between Capital Gains Tax (CGT) and income tax rates. There has been political support for bringing CGT more into line with income tax rates, but there is a greater question around whether increasing CGT rates would actually deliver a meaningful increase in Treasury receipts.
Pension tax relief
An obvious target likely to attract attention would be pension tax relief, particularly for higher rate tax payers. Various proposals have previously been discussed, including replacing the current system with a flat-rate relief or limiting the value of relief available to higher earners.
The problem is, pensions are a long-term policy area, which possibly explains why the questions surrounding pension tax relief have been repeatedly placed under the Budget spotlight, only for significant reform not to materialise.
Is the £250,000 tax-free pension lump sum under threat?
Staying with pensions, the other area which may come under scrutiny is the tax-free pension commencement lump sum. Currently, eligible individuals can generally take up to 25% of their pension benefits tax-free, subject to a maximum of £268,275 for most people – although the £250,000 figure is sometimes used when discussing proposed or historical limits.
Reducing the amount that can be taken tax-free would provide the Government with another potential source of revenue, however, people have built their retirement planning around the existing rules and changing them could prompt people to bring forward decisions that would potentially reduce the immediate revenue available to the Treasury.
Council Tax
Perhaps the most radical option would be a fundamental overhaul of Council Tax. Revaluing properties and introducing a more up-to-date system could potentially generate substantial additional revenue, particularly from higher-value properties.
However, any wholesale revaluation would create winners and losers and could have significant implications for homeowners, landlords and the wider property market. With the housing market already facing considerable uncertainty, is now really the time to introduce another major property tax shock?
Banks could be asked to pay more
Another potential target is the banking sector. Increasing the bank levy or otherwise raising the tax contribution from banks could be an attractive option for the Chancellor.
However, the Government needs to be careful. Banking is an international industry and increasing the tax burden too far could ultimately prove counterproductive if activity moves elsewhere.
Fuel duty – and the VAT question
With petrol and diesel prices already being pushed higher by geopolitical tensions and increased oil prices, delaying or cancelling an increase in fuel duty could provide some relief to households and businesses.
However, when fuel prices rise, the Government receives not only the fixed-rate fuel duty but also VAT on the overall price paid at the pump. In other words, when the underlying cost of fuel rises, the VAT take can rise too.
That creates an uncomfortable question for the Treasury: if motorists are already paying significantly more because of higher oil prices, is the Government effectively benefiting from increased VAT receipts at the same time as households and businesses are being squeezed?
It will be interesting to see whether the Chancellor acknowledges that additional VAT windfall when considering fuel duty.
What should we expect?
In short, the Chancellor needs to raise significant revenue, but most major tax options carry economic risks.
The October Budget is therefore likely to involve a range of smaller tax rises and changes rather than one major increase. These could include closing loopholes, reducing tax reliefs, selectively increasing rates and tightening existing rules, not forgetting the frozen income tax thresholds already baked in for the next few years.
The key challenge will be raising the money needed without discouraging investment, saving, business activity or consumer spending – all of which ultimately generate tax revenue.
The event will be chaired by Tim Major, Senior Account Manager at Thames Valley Chamber of Commerce, and will feature expert analysis from Dominic Bourquin, Partner at Monahans, and Stephanie Hurst, Director at Monahans. To book your place click here.
If you are thinking about bringing forward any decisions pre-Budget or would like some further advice about forward planning, contact Monahans to see how we can help.
