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Rebecca Cave's second Budget predictions

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29th May 2015
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Rebecca Cave has read the tea-leaves of the election cup and predicts some significant tax changes in the Summer Budget on 8 July 2015.

George Osborne said his second Budget in 2015 will be a “Budget for working people”. So does that mean any tax rises will fall on those who generate funds from investments; such as letting property or capital gains, rather than employment? 

We know there will be second Finance Bill this year as it was mentioned in the Queen’s Speech at the opening of Parliament. This will include provisions to prevent any rise in the rates of VAT or income tax until 2020. Note there is no promised cap on increases in the rates of corporation tax, IHT, CGT, SDLT, or ATED.

NIC

A National Insurance Contributions Bill in this session of Parliament will legislate for a cap on the rates of NIC. However, apparently that cap doesn’t extend to Class 4 NIC paid by the self-employed, as confirmed by HM Treasury to the Radio 4 Money Box programme (reported by Elaine Clark of CheapAccounting.co.uk).     

The Spring 2015 Budget (see p 20 of OOTLAR) included a pledge to abolish class 2 NIC and reform class 4 NIC, effectively merging these two charges. Consultation on how this will be done is expected, but it would be reasonable to assume that the rate of class 4 NIC will rise above 9% after the merger, perhaps to 12% to align with class 1 NIC paid by employees.         

CGT

The “Emergency Budget” after the 2010 General Election increased the rates of capital gains tax with effect from the following day: 23 June 2010. Something similar could happen this year as the current rates of CGT (18% and 28%) are significantly below the top rates of income tax: 40% and 45%. And of-course CGT isn’t paid by “working people”, is it?

SDLT

The structure and rates of Stamp Duty Land Tax (SDLT) on residential property were reformed with effect from 4 December 2014, but the rates and bands for commercial properties were not touched. So now we are burdened with two different methods of calculating SDLT for commercial and residential properties in England, Wales and Northern Ireland, with a yet another set of rates and bands applying to property transfers in Scotland under LBTT (land and building transaction tax).  

SDLT has proved to be a significant earner for the Government over the last five years, so a little more plucking of that golden goose is likely, possible under the guise of “simplifying” the system. 

Pension contributions

In the General Election campaign the Conservative Party said it would reduce tax relief on pension contributions for those paying tax at 45%. This restriction could apply instantly, but it is more likely to apply from 6 April 2016. This change would eliminate a significant amount of tax relief from the Government’s books, and has the advantage of only hitting the “rich”.  

IHT

Another of the Conservative manifesto promises (see page 67) was to shelter homes worth up to £1 million from inheritance tax (IHT). However, doesn’t mean there will be a £1m exemption for every residential property.

Currently each individual has an IHT nil-rate band of £325,000. That nil-rate band can be passed on to their spouse (or civil partner) on death, leaving the survivor with a doubled-up nil-rate band worth £650,000.

The proposal is to give home-owners an additional £175,000 nil-rate band that applies only to the value of the family home. When this “home allowance” passed on following the death of the first spouse the survivor will have a total nil rate band of £1 million, but £350,000 of that band will only give relief against the value of their own home. Those who die with an estate worth over £2.35 million won’t benefit from the additional £175,000 nil rate band for homes. 

Nom-doms

One of the key Labour Party pledges in the Election campaign was to axe the favourable tax treatment of non-domiciled individuals. This proved so popular that the Conservatives jumped on the idea as well. George Osborne was reported as considering removing the ability to inherit non-dom status from a person’s father or grandfather.

Of-course proposals to reform non-dom status have been kicking around for years. Whether the Chancellor is brave enough to take decisive action in this area is another matter.  

Your turn!

If you have any better ideas as to what should be announced in the Summer Budget, HM Treasury wants to hear from you. You can submit ideas through an online survey or by email until 5 June 2015.  Alternatively leave your comments below.

Rebecca Cave is the author of Tax Rates and Tables 2015/16 (Pre-Election edition)  published by Bloomsbury Professional

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