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THE UK CHANCELLOR of the Exchequer George Osborne will deliver his spring budget on 21st March and Francesca Lagerberg, Head of Tax at business and financial adviser Grant Thornton UK has revealed her top ten predictions.
Ms Lagerberg said this Budget will focus entirely on growth and galvanising the corporate world into pulling the UK away from a double dip recession. “Osborne is unlikely to set out bold tax rises but instead I suspect we will see rewards for innovation and making it more attractive to base a company on British soil,” she explained.
“There may be targeted but small tax breaks for the most vulnerable sections of society including families on low incomes and the elderly but expect a focus on further anti-avoidance measures including a clampdown on stamp duty land tax avoidance.
“The Finance Bill, which will follow the Budget, is likely to be scrutinised in a way that last year’s wasn’t due to the ongoing situation we find ourselves in. Many of the measures will be focused at retaining our AAA credit rating and placating the British public who are desperate for a spot of light at the end of a very dark economic tunnel.”
Top Budget 2012 Predictions:
1. Personal Allowances
“Osborne will reaffirm the coalition target of raising the personal allowance to £10,000 by April 2015. Although there are suggestions of a more rapid rise, this is unlikely to feature as the cost of implementing it is so high.”
2. Pension Tax Relief
“There is speculation that the Government will limit pension tax relief to the basic rate of 20% in the March Budget, so it’s advisable to take advantage of the rule that allows individuals to receive any tax relief which hadn’t been claimed in the previous four years.
“It is worth bearing in mind that this rumour has appeared before many of the last budgets. The difference this time is that it appears to have more traction particularly given the reinvigorated support from the Liberal Democrats.
“If this change occurs it will affect the pension contributions of higher earners to help pay towards lifting everyone earning under £10,000 out of tax. The controversial plans could lead to a potential saving for the Exchequer of billions of pounds. For higher earners, this move will feel like a tax rise as when paying the top rate of tax you can claim relief of up to 50 per cent on you pension contributions.”
3. Tax Avoidance Clampdown
“Following the Barclays bank story, we can be confident that the Chancellor will mention tax avoidance and the need to close down loopholes, especially focusing on higher rate tax payers and large corporates. I suspect that Osborne will say the Government plans to adopt a general anti-avoidance rule (GAAR) along the lines outlined in the recent independent report by Graham Aaronson QC.”
4. Stamp Duty Land Tax
“There has also been a great deal of publicity about stamp duty avoidance. We expected the Government to act in the Autumn statement so it would be a surprise if did not provide clarity and close the perceived existing loopholes in March.”
5. Statutory Residency Test
” As already announced, the statutory test of residence will be deferred until 2013 but it’s likely we’ll hear a commitment to press ahead with establishing the test. I also expect Osborne to give more details about the plan to encourage wealthy non-domiciled individuals to invest in UK businesses. Considerable detail about this was provided last December.”
6. Higher Rate Tax Payers – 50% tax
“We do not yet have the report on the money raised by the 50% tax rate but Osborne cannot remove it while public sector workers are undergoing a pay squeeze. Therefore, I expect it to stay until the end of this parliament although it is unlikely that we will get any firm date for it to be scrapped outlined this time.”
7. Mansion Tax
“It is likely that the Chancellor will rule out the creation of two new top-level council tax bands or a ‘mansion tax’. The Liberal Democrats believe installing this measure would enable the Treasury to raise the income tax threshold to £10,000 but Conservative ministers oppose the measure as it breaches the Tory manifesto commitment not to revalue homes for council tax.”
8. Support for Green Initiatives
“Perhaps to round off his speech the Chancellor could give a nod to the Green lobby by announcing support for green projects, but at the same time say that the fuel duty escalator will be frozen for the time being as a help for motorists. We’re likely to have an update on the Green Investment Bank, either hearing of the first projects it will support or a projected timeline for the projects commencing.”
9. Luxury VAT Rate
“There is an outside chance the Chancellor will impose a rate of VAT at 25% for luxury items. This would raise additional revenue for the public purse on items that are not deemed ‘necessities’. This move will not go down well with wealthy individuals and those that wish to purchase luxury items, especially those who are also caught by the top rate of tax. It may even go as far as driving these individuals abroad.”
10. Competitive UK
“The Government will want to continue making the UK an attractive place to do business and in order to do that it has already set out a corporate tax road map around controlled foreign companies and the patent box regime. The Chancellor will reiterate these changes but may announce minor tweaks in response to consultation.”