Most people will be hoping for some tax cuts from the Conservative government alongside schemes to improve economic growth when the Chancellor comes to the Dispatch Box to present his Spring Budget on the 6th March, just two weeks away as I write this.

As ever, little is certain, but speculation is rife! In this post we’ll take a look at some of the speculation and calls that have been loudest since the date for the Spring Budget was announced.

Inheritance Tax may be abolished

Inheritance Tax (IHT) is currently levied on the estates of certain deceased persons as well as on certain lifetime gifts. IHT applies to the value of an estate that exceeds a specified nil-rate band. The IHT tax rates range from 0% to 40%, and the tax is calculated on the total value of the estate, including:

• Property
• Money, and;
• Possessions

Lifetime gifts may also be subject to IHT, especially if made within seven years before the individual’s death. Whether on death or as a result of a lifetime transfer, certain exemptions and reliefs may apply in the calculation of IHT. 

It is certainly an unpopular tax, although it is reported to affect just 4% of estates. 

Rumours are rife that abolition of the tax would be an election-pleasing policy (and we can certainly see it would constitute tax simplification!) but the Conservative party is downplaying the idea. It was mooted as likely in the run-up to the Autumn Statement last year too, so may be a red herring this time too.

Income Tax thresholds to be increased

Income tax bands may be increased for the first time since April 2022, releasing UK taxpayers from ‘fiscal drag’. 

The personal allowance has been set at £12,570 since the 2021/22 tax year, with further reductions for those with income above £100,000. 

Similarly, the basic rate band has been fixed at £37,700 since 2021/22 and, for additional rate taxpayers, the additional rate band actually reduced from £150,000 to £125,140 in 2023/24. 

With these bands currently frozen until April 2028, earlier application of inflationary increases would benefit all UK taxpayers and be a welcome pre-election measure. 

(Remember alternative bands apply to non-savings income in Scotland. )

Income Tax rates

Building on the reductions to National Insurance Contributions (NICs) announced by Jeremy Hunt in the Autumn Statement, we may see a reduction in income tax rates in the Spring Budget. The Conservative party has previously signalled a path to reducing the tax burden, and the electorate’s desire for income tax cuts is well understood.

Income tax is currently assessed at 20% within the basic rate band, 40% in the higher rate band, and a top additional rate of 45%. Alternative rates apply to saving and dividend income and to income earned by Scottish taxpayers. Most likely is a 1-2% reduction in the basic rate of income tax, while the Times recently speculated that National Insurance could reduce further.

Making Tax Digital for Income Tax

Some headway was made in the Autumn Statement but the consensus in the accounting profession was that the government had not gone far enough in the adaption of the reporting rules as we approach the April 2026 start date. 

Watch out for more changes!

Raising the VAT threshold for economic growth

It’s widely believed that raising the registration threshold for VAT in the Spring Budget would encourage economic growth. Some businesses take measures to keep their business turnover below £85,000 to avoid the need to register for VAT. This threshold could therefore be seen as a barrier to growth in UK business.

Having been set at £85,000 since 1st April 2017, an increase would seem likely. 

Individual Savings Account (ISA) Limits

Picking up on a rumour from November 2023 that did not come to fruition in the Autumn Statement, we may well see an increase to the main £20,000 annual ISA saving limit (and other ISAs) to encourage and reward savers. 

First time buyers using Lifetime ISAs are currently penalised when buying homes worth more than £450,000. A change to this could make it easier for people to get onto the housing ladder, given the house price increases in recent years.

Pensions

It seems certain that we’ll hear more about pension reform to ensure better outcomes for savers, including the proposed lifetime provider model to avoid individuals building up multiple small pension pots as they take their careers through multiple employers. 

Simplification of the High Income Child Benefit Charge (HICBC)

Even Jeremy Hunt has admitted there is ‘unfairness’ in the current structure of the HICBC, which has also been described as a ‘disincentive to work’ and a ‘tax trap’ for families.

Unchanged since 2013, this unfairness arises because one family could have both partners earn £49,000 and receive the full child benefit, while another couple (or a single parent) where one earns £60,000 will receive nothing. Tax payers often don’t realise they’ve reached the threshold for the benefit to be clawed back, and face unexpected penalties.

Options open to the Chancellor include raising the clawback threshold in line with inflation, match the threshold to income tax bands, increase the limit for single earners, or scrap it entirely. Given the attention the HICBC has received recently though, it’s likely that there’ll be some change to come.

Simplification of Capital Allowances

As introduced in the Autumn Statement last year, we may see measures to simplify the UK’s capital allowances legislation. With full expensing for companies and wider application of cash accounting for self-employed people already underway, this may not however grab the desired headlines. 

Fuel Duty

A temporary 5p cut in fuel duty is due end on the 23rd March 2024. The 6th March Spring Budget may extend the cut and / or address inflationary increases to the duty that are also soon due to be imposed. 

When will tax savings be delivered?

This may be the crucial question for the Spring Budget on 6th March 2024. Can the government afford a package of measures such as the above, taking effect straight away? Probably not.

It’s understood that a ‘5-year tax-cutting plan’ is being prepared, meaning measures announced in the Spring could be phased in over several years – subject to a change in Government. In anticipation of a new government, of course, all eyes will be on Labour’s shadow financial secretary.

And what about the looming election?

The relatively early Budget date, which would usually be towards the middle of March, is fuelling speculation about the possibility of a Spring general election. 

Local elections are due to take place on 2^nd May 2024 so that date could be a contender for a wider general election. Regardless of the final election date, this Spring Budget is likely to be the Chancellor’s last opportunity to make any significant announcements before the country goes to the polls.

As always, we’ll be watching the Chancellor’s speech on the 6^th March, and will be in touch shortly afterwards with our summary. If you’d like to receive your own copy, add your detail below and we’ll do the rest!