Autumn Budget: Which Tax Rumours Are Worth Watching?
With the Autumn Budget just around the corner, speculation is already gathering pace. Most of these ideas will never become reality, but they do provide an interesting insight into the direction tax policy could be heading. Rather than commenting on every rumour, I thought I’d share my thoughts on the ones that could have the biggest impact if they ever became reality.
Every Budget season starts the same way.
Rumours begin circulating, commentators start predicting tax rises, and business owners and investors start wondering what it could all mean for them.
Budget speculation is nothing new, and many ideas never make it into legislation.
However, as an accountant, I always find these discussions interesting because they often provide an insight into the types of changes the Government may be considering.
Rather than commenting on every proposal, I thought I would share my thoughts on four of the more mainstream ideas that could affect many of my clients if they were ever introduced.
Fiscal drag (freezing income tax thresholds)
Rather than increasing income tax rates, the Government simply freezes the tax thresholds. As wages rise over time, more people are dragged into paying tax or into higher tax bands.
What I think
I think this is one of the sneakiest ways of increasing taxes.
If the Government believes taxes need to rise, I would much rather it said so openly. Freezing thresholds allows billions of pounds to be raised whilst still claiming that income tax rates have not increased, because technically the rates themselves have stayed exactly the same. Personal allowances have not changed for years, yet prices have risen by up to 30% in the same period.
Increasing Capital Gains Tax
There is continued speculation that Capital Gains Tax rates could move closer to Income Tax rates.
What I think
I am not convinced it would actually raise more money.
If selling an asset becomes significantly more expensive, many people simply decide not to sell. History has shown that higher tax rates do not always produce higher tax revenues. Sometimes they simply reduce the number of transactions taking place. This will just add to the housing market crises.
Capital Gains Tax on death
Another proposal being discussed is removing the current Capital Gains Tax uplift on death.
Under the current rules, beneficiaries inherit assets at their market value on the date of death, effectively wiping out any Capital Gains Tax that built up during the deceased’s lifetime.
What I think
This proposal particularly interests me because I have used the current rules to help a family plan their affairs.
An investment asset originally owned equally by a husband and wife was transferred into the terminally ill spouse’s sole name. As transfers between spouses are free from Capital Gains Tax, this could be done without triggering an immediate tax charge. On death, the beneficiaries inherited the asset at its market value, effectively removing the historic Capital Gains Tax liability.
If the Capital Gains Tax uplift on death were abolished, that planning opportunity would disappear.
Death is already an expensive time for many families without making it even more costly from a tax perspective.
I also worry it could discourage families from selling inherited property, reducing the number of homes coming onto the market at a time when housing supply is already under pressure.
VAT
Two VAT-related ideas continue to surface: simplifying the UK’s complicated VAT rules and reducing the VAT registration threshold.
What I think
I genuinely enjoy some of the famous VAT cases involving food - they are one of the quirks of being a tax adviser!
But I do question whether our VAT system really needs to be so complicated.
One idea I would actually welcome is reducing the VAT registration threshold, as well as a simplification of the VAT system.
Over the years, I have seen businesses deliberately turn away work or delay growth simply because they were worried about crossing the VAT threshold.
Tax rules should encourage businesses to grow, not create artificial barriers that discourage ambition.
Final thoughts
For now, these are simply rumours, and there is no guarantee that any of them will appear in the Autumn Budget. In fact, history tells us that many Budget rumours never become reality.
I will be sending my usual Budget newsletter shortly after the Autumn Budget, explaining what has actually changed, what it means in practice, and whether you need to take any action.
If you are considering any major financial decisions before then, now is a good time to review your tax planning. Please get in touch if you would like to discuss your options.
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