Budget 2016 predictions on pensions, Isas and tax

osborne-in-hat

With the Budget just a few days away Moneywise looks at what the experts are predicting. 

Of course no-one knows for certain what Chancellor George Osborne will deliver on 16 March - we’ve seen some rabbits pulled out of the hat in previous years, such as the pension freedoms, so ensure you check Moneywise.co.uk and follow @Moneywiseonline on Twitter for news on the big day. 

Pensions

Earlier this month Mr Osborne shocked many by backtracking on plans to reform the tax treatment of pensions – see the Government U-turn on pensions tax relief.

Speculation had been mounting as to whether he would introduce a new flat rate of tax relief on contributions of between 25% and 33%, or a pensions Isa, which would have had a lower rate of tax relief on contributions but would pay out tax free.

However, Richard Parkin, head of pensions at Fidelity International says: “We expect this is action postponed rather than action abandoned.”

While Tom McPhail, leading pensions expert and head of retirement policy at Hargreaves Lansdown, adds “there is still plenty of wriggle room for changes in the Budget”.

Some experts believe Mr Osborne may reduce the amount people can save into their pension.

David Smith, director of financial planning at Tilney Bestinvest says: “It is possible that further reductions in the annual allowance could be made; that is the amount that an individual can save into a pension each year, thus significantly reducing the amount of tax relief available. Perhaps he will reduce the annual allowance to £30,000 [it’s currently £40,000/year]. 

“The tapered annual allowance, the restriction on the amount of pension savings for the highest earners, could see the threshold of earnings above which it is implemented reduced from £150,000 to say £100,000.”

Steven Cameron, director of pensions, at Aegon UK adds: “We may see further reductions to the sums people can pay into pensions, either through the lifetime or annual allowance [the lifetime allowance is already being reduced this April from £1.25m to £1m].

“There could also be changes to the tax paid when taking pension lump sums.

“The Chancellor may also announce the outcome of the Treasury and FCA’s Financial Advice Market Review, and this could open up new routes for advice, guidance and support including on pensions. We may also see next steps towards the secondary annuity market.”

AXA Self Investor says the ability to make pension contributions via salary sacrifice could also be targeted.

Income tax and National Insurance

One idea that’s been floated is whether Mr Osborne will combine income tax with national insurance. See Tax rates, limits and allowances for 2015/16

Mr Smith says: “The coupling of income tax and National Insurance could yet be the next port of call to help out with the Chancellor’s balance sheet. Many have called for this proposal in order to simplify an antiquated personal tax regime.”

However, Andrew Watters, senior tax partner at Thomas Eggar believes this isn’t the year for the change. “While it would make lots of sense to integrate national insurance into income tax, the effect would be to raise the headline rate of income tax. 
“In a Budget where there is already going to be a lot of nasty medicine to swallow, this is unlikely to be the year of such rationalisation.”

Wealth manager Brewin Dolphin says increases to the income tax allowance may be delayed. You can currently earn £10,600 a year before paying any tax, which is due to rise to £11,000 in 2016/17 and to £11,200 in 2017/18.

On the other hand, Axa Self Investor says Mr Osborne could increase the personal allowance as it’s proved a popular policy.

Insurance premium tax (IPT) and fuel duty

Edmund King OBE, AA president, is concerned the Chancellor may consider IPT and fuel duty hikes to be a ‘quick win’ to increase revenues.

IPT already rose from 6% to 9.5% on 1 November 2015, which the AA says added up to £18 to the average quoted premium for a car insurance policy.

John O’Roarke, managing director of LV= says: “IPT is not a tax on insurance companies – it’s a tax on insurance products which is paid directly by customers – effectively penalising them for doing the right thing and protecting the things they value most. We therefore urge the Treasury not to introduce a further increase.”

Fuel duty meanwhile, which is included in the price you pay for petrol, is currently 57.95p/litre for unleaded and diesel. It’s been frozen at this price since March 2011.

Individual savings accounts (Isas)

Axa’s Mr Lowcock says we might see an improvement on the “unnecessarily complex” Isa inheritance rules where a surviving spouse inherits the Isa allowance. But he adds that little else is expected on Isas. 

Stamp duty and first-time buyer schemes

David Hollingworth, from mortgage broker London and Country, says there’s unlikely to be radical stamp duty changes introduced in this Budget given the new stamp duty rates introduced in December 2014 and new buy-to-let rates coming into force next month.

However, he says Mr Osborne could potentially announce plans to expand on various property schemes that encourage new homes to be built and help first-time buyers to get on the property ladder.

 

 

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