“The new Government has a large majority and therefore the Chancellor can be bold in the measures he introduces. As with all Budgets, the tax measures will try and accomplish a number of aims, including to raise finance to cover the large spending commitments made during the election, encourage investment, construction and research, but will also include targeted measures to encourage or discourage certain behaviours.
“From the rumours we have heard, and reading between the lines of various comments made, the measures that might appear in early March could include:
- Measures to tackle ongoing issues of tax evasion. These will inevitably be targeted at known abuses and schemes.
- An increase in the NIC threshold
- Restricting pensions tax relief to 20 percent. This is seen as a possible method to raise money to fund increased social care. Council Taxes are also expected to rise to help fund this.
- Reforming Inheritance Tax (IHT) to make it fit for the 21st Century and to simplify it. The rumours indicate that there will be winners and losers. The basic exemption (nil rate band) could be increased but the exemptions for certain gifts and non-chargeable assets may become more restrictive.
“Whilst people think of tax as a finance raising initiative, taxation is also used to influence behaviour. Various ministers have hinted at changes to such incentives but there is little detail available. The Government is keen to promote and incentivise research and development, but we are increasingly seeing some advisors abuse the rules and push claims beyond “normal” levels.
“From experience, this not only exposes the client involved but also puts the whole incentive scheme at risk. I would therefore not be surprised if the R&D tax relief rules were tightened.
“The most commented on reform to tax incentives is a restriction to Entrepreneurs’ Relief, which provides a 10 percent capital gains tax rate to people selling the trading businesses. Possible changes could include a restriction to the total value of gains qualifying for relief, an increase in the rate above 10 percent, or more subtle changes such as increasing the qualifying shareholding threshold, the qualifying holding period or the physical involvement with the business (i.e. a working time requirement).
“Over recent years there has been a stagnation of investment and a decline in productivity. We would therefore expect to see more incentives to encourage businesses to invest. The Annual Investment Allowance has already been increased to £1m and I would expect to see this remain in place. In addition, there will be targeted efforts including special incentives around the proposed free ports and enhanced relief for carbon cutting initiatives.
“New house building will continue to be encouraged. At present, Stamp Duty Land Tax can put people off property purchases and so a reduction at the lower end of the tax is likely. There will also be incentives introduced to help first-time buyers afford homes in their local area.”