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Budget 2016 predictions: what to expect

by: Paloma Kubiak
  • 15/03/2016
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While buy-to-let investors will be nervously waiting for news of the Stamp Duty surcharge in tomorrow's Budget, here's a list of predictions from our experts on what else we can expect from the Chancellor.

Annual allowance 

The annual allowance – the amount savers can put into their pension each year tax free – could be cut further. It has already been capped at £40,000 but David Smith of advisory firm Tilney Bestinvest says it could go down to £30,000. The Tapered Annual Allowance, the restriction on the amount of pension savings for the highest earners, could see the threshold of earnings above which it is implemented reduced from £150,000 to say £100,000.

Lifetime allowance

We already know that the lifetime allowance (LTA) will fall from £1.25m to £1m in April, meaning a decrease in the maximum amount savers can hold in pension savings without facing a massive tax bill. But the LTA  could be cut further.

Income tax

The personal allowance – the amount of income you don’t have to pay any tax on – is set to rise to £11,000 in April from £10,600. The Chancellor could well increase it again as it has proved to be a popular policy and it is the government’s intention to take more lower income earners out of paying tax altogether. The government’s objective this term is to have a personal allowance of £12,500.

Cutting the highest rate of income tax from 50% to 45% actually boosted the Treasury coffers, although much of this has been attributed to deferred bonus payments. Lowcock says we could see the level at which higher rate tax is charged raised to take more people out of the 40% tax band. The government’s intent is that people with incomes below £50,000 should not pay higher rate income tax.

Merging National Insurance & Income Tax

The Office for Tax Simplification has recently published a report calling for a closer alignment of Income Tax and National Insurance. According to the Centre for Policy Studies, the Chancellor could set out a clear pathway to achieve the eventual merging of these two taxes.

According to Smith, many have called for this proposal in order to simplify an “antiquated personal tax regime”.

“Whilst the Chancellor may cite this as a principal reason, rest assured it will serve no other purpose than to unshackle his self-imposed ban on increasing Income Tax and National Insurance during this Parliament,” says Smith.

“A new singular rate; 33-35% for Basic rate taxpayers and 43-45% Higher rate taxpayers could be introduced. Effective savings on National Insurance contributions up to the Personal Allowance would be hailed as a good thing for the lower paid, but it would no doubt create significant earnings for the State in the long run.”

ISAs

The ISA allowance is £15,240 and the Chancellor introduced Help to Buy ISAs in December and the Innovative Finance ISA is due to come in on 6 April meaning it is unlikely there’ll be anything happening with ISAs. Lowcock says we may see an improvement on the rules of the inherited ISA where a surviving spouse inherits the ISA allowance but the process of doing so is “unnecessarily complex”.

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