New limits on pensions tax relief, a boost for venture capital trusts (VCTs) and a simplification of capital gains tax (CGT) law are some of the likely headlines from next week's Budget, according to Brewin Dolphin.
Chancellor George Osborne is set to restrict what can be held in pension schemes, with possible new limits on tax relief, and an announcement pension pots below £40,000 will no longer have to buy an annuity.
“The government has put in place measures to further limit tax reliefs to those thought of as wealthy,” said Richard Harwood, divisional director of financial planning. “It would seem that there is political will to restrict tax reliefs so the limits may be tightened further in future, but there is a danger that these will again hit the ‘squeezed middle’.”
Investment limits in VCTs and EISs could also be lifted, but restrictions on what can be placed in them may be tightened, Harwood said.
“Increasingly, EISs and VCTs are providing funding for businesses that would traditionally be the domain of banks.
“But we would not be surprised if there was further tweaking of the rules on what investments are approved in order to ensure there is true risk within the plans and that they are not just schemes to maximise tax reliefs.”
“This continues to be a priority, and any victory in court for HMRC is strongly publicised, so we should expect the closure of perceived loopholes to be highlighted,” Harwood said.
Tax and national insurance
Head of portfolio strategy Guy Foster said Osborne may choose to raise the minimum wage, with the funding being taken from further advances in the personal allowance.
“Osborne has been quite clear about the type of budget he is planning,” he said. “Large scale giveaways are not justified by either the political or economic cycle this year.
“Even as inflation falls, however, the accumulated decline in real incomes from rising prices and stubbornly inert wages remains a hindrance to economic prospects. A big issue therefore is what he may do for the low paid.”
Speculation is mounting the government may be set to reinvent the ISA, according to divisional director Rob Burgeman.
“The uncertainty is most unwelcome and destabilising at a time when every encouragement should be given to those seeking to ensure their long-term financial security. Any restrictions on ISA savings will drive the spare savings flow into the already overheated property market.”
Capital gains tax
Reform of capital gains tax is also needed, Burgeman added: “Greater simplification is required over CGT, especially as savers are now being taxed on inflation since the indexation of book costs was removed. How long before we will see fair differentiation in the taxation of short-term speculation and long-term investment?”
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