Tony Wickenden: Pensions and tax predictions for the Budget

Tony WickendenA round-up of the likely announcements to come from the chancellor next week

Given the current focus on Brexit, the upcoming Budget almost seems a sideshow this year, doesn’t it? And that is worrying. Having the Budget almost in the shadows is a reflection of what the everyday running of the country has become under the cloud of Brexit preparation (or lack of it).

Indeed, it continues to suck up so much political time and energy, it is hard to see how the ordinary business of running the country – let alone proactively improving it – can be carried out by the government.

Tony Wickenden: Bombshells unlikely in pre-Brexit Budget

Anyway, let’s focus on the Budget itself. What might we expect to be announced of relevance to our profession? Let’s take a look at what has been in the news.

On pensions…

Pension tax relief is the big talking point at the moment. Can Philip Hammond keep his hands off?

Some clues may be found in the Treasury select committee’s Household Savings Report: “There is widespread acknowledgement that tax relief is not an effective or well-targeted way of incentivising saving into pensions.

“Ultimately, the government may want to return to the question of whether there should be fundamental reform.

“However, the existing state of affairs could be improved through further, incremental changes.

“In particular, the government should give serious consideration to replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.”

My opinion is that, while it may be hard to argue with this view, it is unlikely contentious pension changes will be made in this Budget.

On the taxation of savings…
The Office of Tax Simplification has been working on ideas to simplify the taxation of savings income. It broadly considers the UK tax system to work well for most savers, as 95 per cent of people do not have to pay tax on income from their savings.

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However, it also acknowledges the fact many worry they will be taxed on their savings income and that misunderstandings remain, with aspects of the regime complicated, difficult to understand and subject to anomalous outcomes. Its report into the issue identifies nine areas where further work would be beneficial, including:

  • A review of the various savings rates and allowances, and the interactions between them, to identify options to streamline the income tax calculation;
  • Drawing up a personal tax roadmap to clearly set out the government’s vision for personal taxation, including plans for savings income;
  • Improving guidance on the taxation of savings income, particularly on the treatment of pension lump sums, an area of particular confusion;
  • Simplification of Isas, including a review of the rules on withdrawals from the Lifetime Isa.

There is a decent chance that some non-contentious changes in some of these areas could be implemented.

On inheritance tax…

If we ignore the radical proposals from the Resolution Foundation calling for the abolition of inheritance tax (keeping in mind, however, that a potential future Labour government may not), then we can look forward to some findings from the OTS’s IHT review.

The OTS has been at pains to emphasise that change to the structure and policy of the tax is beyond its scope. Its focus is on simplifying the operation of the tax.

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To that end, it has split its review into two parts: administrative and technical. We can expect its administrative findings and recommendations around the same time as the Budget, with its technical recommendations to come in the new year. Changes from the review could incorporate some tidying up of the residence nil rate band.

On everything else…

Meanwhile, we can be absolutely sure there will be more targeted anti-avoidance rules introduced.

Targeting anti-avoidance is a cross-party mission and it is pretty much Brexit-neutral. Aside from presenting the right philosophical future, it also increases HM Revenue & Customs and Treasury cashflow, which can only be a good thing.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn

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