Well I’ve had a week off in Northumberland enjoying walking on the best beaches in England, getting soaked a few times and seeing some wonderful countryside, and the chatter about the forthcoming Budget has got louder and louder.

Here are my latest thoughts about what may happens of today and what we can do about it before October 30^th.

National Insurance Contributions (NICs)

Even though the Labour manifesto stated they would not increase NICs they now seemed to have pivoted to the line that this was only meant for working people (their version of) and didn’t include employers.

The big ruse at the moment is that they will subject employer pension contributions to the employers rate of NIC which is 13.8%. It’s a strange one but the rumours are coming thick and fast on this one as they think this is a painless way to raise a lot of revenue fairly quickly.

The knock on effect will be the death knell of salary sacrifice schemes as they wont be worth the extra complexity than just paying a personal contribution and the major tax break disappears.

However, if you are a company director paying in regular monthly employer pension contributions in I would consider making a lump sum payment before the end of the month to the value of the monthly contributions you are making to the end of April. At least these will be free of NIC if this rumour comes to pass and this will save 13.8% NIC levy on the pension payment.

If you are thinking of making a lump sum employer pension contribution before the end of the tax year it may be prudent to make the payment now if your business can afford the extra cashflow.

Tax Free Cash from Pensions

I still don’t think they will change the existing rules about tax free cash even though he papers are full of comments about capping the figure at £100,000. This started with a paper from the Institute of Fiscal Studies and I don’t believe that will be adopted by HMRC. One of the main issues with this is that Senior Civil Servants and NHS Consultants would be adversely affected by a change and I don’t believe that the Turkeys will vote for Xmas.

Anyway, if they changed the rules there would have to be some transitional protection in place for anyone over a new limit so there is no need to hastily withdraw tax free cash from a pension now. Currently the maximum tax free cash is limited to £268,275 across all pensions and that is frozen for the foreseeable future so over time for people with pension funds in excess of £1.072M the maximum percentage will fall below 25% as the fund increases in value.

Capital Gains Tax

It seems that they are going to increase CGT but to what rate and against what asset is still very much open to conjecture.

They may align the rates of CGT with income tax rates which would be pretty draconian but I wouldn’t be surprised if they did.

CGT is taxed on disposal of certain assets which include shares, collective funds not in an ISA, second properties and other investments. Weve had some clients sell their shares and collective funds recently so they know what tax they will have to pay as currently the rate is 10% for basic rate tax payers and 20% for higher rate. If it aligns with income tax then these rates will double.

There are also rumours about the ending of Business Asset Disposal Relief commonly known as Entrepreneurs Relief. This is when you sell a business or qualifying shares and the first £1M is taxed at 10%. If they change the rules or abolish it altogether and then align CGT with income tax rates this will have a major effect on small business owners who are looking to retire. But there is nothing that can be done in the short term to alleviate this if it comes to pass.

Inheritance Tax (IHT)

There looks like there will be some changes such as increasing the term when a gift is exempt from IHT from the current 7 years to 10 years.

But, there is nothing to do in the short term but wait and see what they do.

 

Overall, all these things are rumours and the best advice is don’t panic and make snap decisions that you may regret later. If you want some reassurance speak to your adviser and I will keep updating the website when I have any more news.

After the Budget we will be sending out our views of what effect all this will have on savings and pensions for our clients.

 

Phil J McGovern FPFS

Chartered Financial Planner