What to Expect in Budget 2014

On Wednesday the Chancellor George Osborne will be delivering this year's annual Budget Report. What should savers and investors expect?

Coutts 17 March, 2014 | 4:23PM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Dominic O'Connell, head of Tax, Trust & Estate Planning at Coutts gives his predictions ahead of Wednesday’s Budget. 

With a May 2015 election on the horizon there has been media speculation and lobbying from certain politicians for the Budget to include a raft of tax cuts. We don’t envisage any wide-ranging reductions, although further targeted cuts for the lower paid and certain businesses could feature.

Income Tax Changes

A further increase in the Personal Allowance to £10,500 seems likely and would be welcomed by many who have not seen a real rise in incomes in recent years. There has also been talk of raising the lower threshold for paying tax at 40%, to ease the burden on middle-class taxpayers who have suffered from ‘fiscal drag’. We’d be surprised if this were introduced, though, particularly given previous announcements of further savings that still need to be found.

A more innovative, and potentially fairer, change could involve lowering the threshold for the 45% rate in conjunction with scrapping the Personal Allowance clawback for higher earners.

Cap on ISAs and Tax-free Lump Sums

Despite recent signs of economic recovery, George Osborne has often repeated the need to make further difficult decisions during 2014. One such decision could be to cap ISA 'pots' and / or restrict the tax-free amount that can be withdrawn from pension schemes, although we believe it would be misguided to introduce such measures before economic recovery is complete. Such measures would inevitably damage public confidence in both the UK’s tax system and savings mechanisms.

IHT Tax-free Band

The inheritance tax nil-rate band is due to stay at £325,000 until 5 April 2018. In light of the election in 2015, and with some talk of another housing bubble, the chancellor may revisit this area. While raising the tax-free band appears unlikely, it could be one way to generate political support at a relatively modest cost to the government.

Top-end Property

Despite recent provisions that charge CGT on non-UK-resident property owners and restrict private residence relief, the government could find further tax revenues from UK property. Although a 'mansion tax' appears unlikely at present, Stamp Duty on high-value properties could be increased as part of an overhaul of the current 'slab' system, whereby the percentage applied to the whole price increases when the price simply crosses the requisite threshold (even by £1).

Anti Avoidance

The distinction between 'reasonable' tax planning and unacceptable tax avoidance is often blurred, and the Budget is likely to announce further measures to curtail artificial and abusive avoidance schemes and close specific loopholes.

Social Investment

Many of our clients are eagerly awaiting further announcements on social investment, particularly in relation to the proposed rate of income tax relief, as this could be an important factor in their philanthropic strategies.



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