Budget Predictions

Chancellor Jeremy Hunt will unveil his Spring Budget on 6 March, which is likely to be his last fiscal announcement before the upcoming General Election.

Before the Autumn Statement in November 2023, there were rumours of Inheritance Tax being scrapped, a change in the calculation of the State Pension, and an ISA aimed at boosting investment into the UK. Instead, pensioners received a boost as the calculation of the State Pension remained unchanged, so they will receive the full 8.5% increase in April. Additionally, instead of the other changes we were expecting, National Insurance was reduced, resulting in an annual saving of up to £754 p.a. for workers.

The Prime Minister, Rishi Sunak, is under pressure personally with the Conservatives still trailing Keir Starmer's Labour Party significantly in the polls, so there is an expectation that big changes need to be announced to change the minds of voters. So, what can we expect?

Arrange your free initial consultation

Inheritance Tax

After opting to cut National Insurance rather than Inheritance Tax in the Autumn Statement, it would seem unlikely that the Chancellor would opt to cut Inheritance Tax now, especially given the relatively small number of voters any change would affect, relative to a further cut in National Insurance or Income Tax.

By way of reminder, Inheritance Tax is payable at 40% when the estate of an individual exceeds £325,000 (though there are increased allowances when main residences are left to direct descendants) and gifts, both directly and into trust, must also be accounted for. Please speak to your TPO adviser for further information.

Additionally, there could be unintended consequences if Inheritance Tax were to be scrapped as previously reported. An example of this could be the impact on some small UK companies, as investors into these can potentially benefit from inheritance tax relief (although these investments are high risk and not suitable for all investors), so the removal of this relief could reduce their appeal to investors.

Income Tax / National Insurance

For the reasons mentioned above, it’s likely Income Tax or National Insurance may be cut rather than Inheritance Tax, in a move that can be framed as a pre-election giveaway. However, as was widely reported after the National Insurance reduction in the Autumn Statement, any reduction’s impact is likely to be minimal when compared with the combined impact of frozen tax bandings and high inflation over the past few years.

This theory is supported by The Resolution Foundation, who have calculated, “Cutting the basic rate of Income Tax by 1p while maintaining the personal allowance freeze next year would mean anyone earning less than £38,000 would see their personal tax bills rise rather than fall.”

Child Benefit Threshold

Another option for the Chancellor could be to raise or scrap the current £50,000 earnings threshold above which Child Benefit starts to reduce.

This would prove popular with some voters, but it would be expensive and would benefit a smaller percentage of the voting public than an outright reduction to Income Tax or National Insurance.

Conclusion

A study by Capital Economics calculates Chancellor Jeremy Hunt has about £15bn in headroom with which he can cut taxes. It will be interesting to see which areas any pre-election giveaways are targeted at and how far Mr Hunt’s tax cuts will go. If he does not go far enough, the Conservative Party could face a wipeout at the next election, but if he goes too far and bond markets view the tax cuts as unfunded, we could have a repeat of Kwasi Kwarteng’s “Mini-Budget’ which caused chaos in bond markets in September 2022.

Mr Hunt has sought to gain market confidence through financial discipline during his tenure as Chancellor and he will not want to jeopardise this in what could be his final budget, he will be under pressure to give Conservative candidates a budget upon which they can build an election campaign.

If you’d like to learn more about how you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our experts for a free initial consultation.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.