By Clare Munro, Tax Partner
020 7490 7766
Philip Hammond unveils the next Budget in just over three weeks and there’s a lot riding on it. There’s pressure to reboot the Tory agenda in compensation for the party’s rather bleak year. There’s pressure to ‘do something’ about the housing crisis and there’s pressure to try to woo the millennial generation away from Jeremy Corbyn’s Labour. Hammond’s Budget in March resulted in a volte face on National Insurance for the self employed, so there is also pressure to deliver a result which sticks this time. And all with a nervous economy and no parliamentary majority.
With so much at stake, we thought it would be interesting to speculate on the ideas which might now be on the Chancellor’s white board at number 11 Downing Street. We’re expecting tax changes in three areas: Stamp Duty Land Tax (SDLT) , tax on the self employed and pensions.
If a buoyant property market has been seen as supporting the fortunes of the Conservative party then some let up in the burden of Stamp Duty Land Tax could be on the cards. Indications are that the rate of growth in house prices has slowed, with declining transaction levels, but the average price of a house in the UK is still the highest on record. SDLT is a financial obstacle to first time buyers and could be slashed for them alone.
Another idea to free up the upper rungs of the property ladder, whilst playing to the more traditional Conservative voters, would be to offer a Stamp Duty Land Tax reduction to retirement age property owners who are looking to downsize.
More radically, it has been suggested that the liability could switch from buyer to seller; buyers moving up a chain would pay duty on the lower value of the property that they sell rather than the more expensive one they buy. The hope would be that this effective reduction in costs would encourage more upwardly mobile vendors onto the market. The losers in this scenario would be downsizers paying duty on their high value property rather than the lower value property to which they want to move.
The Government has been trying to close the gap between taxation of the employed versus freelancers. We’ve seen the tightening of the IR35 rules for contractors operating via their own company in the public sector and an abortive attempt to hike self employed National insurance in the Spring. Whilst it could be dangerous for the Chancellor to revisit the National Insurance reforms, a continuation of the IR35 campaign is quite possible. The changes which took effect for contractors operating in the public sector could easily be extended to the private sector too.
Any largesse will need to be paid for and, once again, pensions are the prime target. The Government has all but removed relief for contributions at the top rate, but it is still available to 40% taxpayers up to the £40,000 annual allowance. Reducing relief to a flat rate, perhaps 30%, or even to basic rate tax level, could save the Government up to £13bn.
Whatever happens on 22 November, we will be sending our clients an initial view on the tax changes most likely to affect them during the afternoon after the Budget. If you’d like to be included in our Budget mailing, please email firstname.lastname@example.org.