Rishi Sunak delivered his Spring Budget yesterday, and a hotly anticipated one it was too.
Several tax consultations have been doing the rounds and with the need to start to pay back the “Covid-debt”, speculation was intense on what tax changes, if any, would appear.
Many commentators felt the Budget would be about spending and economic stimulus this time, with substantial tax changes put off until later, possibly another Budget in the autumn.
In the end there was, as expected, stimulus and support for the economy as well as a start in raising taxes.
None of the changes suggested by the previous tax consultations came to fruition so it looks like “Tax Day” on 23 March when many of the tax consultations will be published could be important.
I suspect these will give us an idea of the more fundamental, longer-term future of taxation for the years ahead such as changes to the taxation of capital gains or the long-expected changes to pension tax relief.
After a long summer of consultation, we may see some more substantial tax changes in a potential Autumn Budget.
Mr Sunak has, though, started to raise tax to “strengthen the public finances”. Some rises will affect people from right across the wealth spectrum and others will only really impact ‘higher net worth’ individuals.
I wonder if the Chancellor was perhaps inspired by one of the snowy days last month because, essentially, what has happened is a big freeze.
As advised back in November, there is going to be a small increase to the tax-free personal allowance up £70 to £12,570 and the basic rate tax band is being extended by £200 to £37,700.
This means higher rate tax will begin at £50,270; (as an aside, people in Scotland have different tax rates and bands dictated by the Scottish Government).
This will then be frozen until 2025/26, along with the pensions lifetime allowance, the annual capital gains tax exemption and the inheritance tax nil rate bands which have not been changed. The Isa allowances, other pension allowances and special savings rates for savings income and dividends are also unchanged.
A widely expected increase to corporation tax was announced.
Freeze on allowances
The blanket freeze on most of the mainstream allowances means the Chancellor has made a start on raising revenue, while maintaining his party’s manifesto commitment not to raise the rates of key taxes.
Freezing allowances for short periods of time does not make much difference but over longer periods does have an impact.
We have seen this with the IHT nil rate band having been frozen for over ten years now – the amount of tax raised and estates paying tax has doubled. The current average IHT bill is £179,000 for those who pay it.
