What might be in this year’s Budget?
Chris Romans Chair of the FBUK Tax Committee
Increasing the dividend tax rate: raising the existing rate (39.35%) for additional rate taxpayers to 45% applicable to other income. Those opposing this increase may argue that cash paid in dividends has already been taxed to corporation tax at up to 25%, leading to an overall effective tax rate of 58.75%. Reduced relief on pension contributions: either by charging employer NICs on contributions to an employee’s pension or restricting tax relief to a maximum rate rather than marginal rates. This could be very complex to implement for public sector defined benefit schemes and is likely to have a significant impact on them. Freezing income tax allowances: already frozen until 2028, these could be frozen until 2030 with no immediate cash impact on the electorate. It would also arguably keep the Government aligned with its manifesto pledge, but would be at odds with the Chancellor’s 2024 Budget speech, where she concluded
taxes may have to rise. The questions are: which ones and by how much?
It wasn’t long after the Chancellor had delivered last year’s Budget that speculation began about the possibility of further tax rises this autumn. The so-called “£22bn black hole” identified by the Government at the start of its term, was followed by significant tax and National Insurance increases being announced at its first Budget. These included a 1.2 percentage point increase in employer National Insurance contributions (NICs), VAT on private school fees, and a 50% restriction in inheritance tax (IHT) business relief and agricultural property relief (BR/APR). This year, a predicted shortfall in the UK’s public finances could be largely driven by a combination of slow economic growth, global trade disruption, and a commitment to increasing defence spending. All of this means that, if the Government is to meet its self- imposed fiscal rules without meaningful cuts to public spending,
Around two-thirds of the Government’s current tax revenue comes from the “Big Three”: income tax, NICs and VAT. In 2023–24, these generated around £650bn worth of revenue. A percent- age point increase in any one of them could raise between £8bn and £10bn per year. However, this would require the Government to break a key election promise to avoid tax increases for “working people”. If the Chancellor sticks to this pledge, the options left might be characterised as “tinkering around the edges”, albeit some may still have significant effect. At the time of writing, the below measures are receiving most speculation. Reducing the dividend tax-free allowance: a reduction or removal of the £500 tax-free dividend allowance. This would raise around £70m per £100 reduction and lead to additional compliance requirements for those previously just within the allowance.
FBUK Issue 4 12
Made with FlippingBook - professional solution for displaying marketing and sales documents online