Enjoy the heat because a tax chill is coming....
According to parts of the media it would appear that this will be the last Informing You before England wins the World Cup. Now I do not doubt England have a chance of doing so but I find it incredible that some pundits have gone from having moderate expectations to envisioning open top buses going round London. All this on the back of a win against a country with a population less than Scotland, having its first ever trip to the World Cup and better known for its head wear.
Alright, I am Scottish and there is a bit (ok – a lot!) of envy in these comments but a semblance of balance would be no bad thing. I suppose it is another example of media hype which we have gone on about ad nauseam in these missives. Sadly the same treatment is being dished out over the “trade wars” that seem to have dominated financial headlines over the last few weeks. Each tit for tat announcement is moving the market by 1 or 2% each day.
Now I am pretty sure that Donald Trump does not want more tariffs being put on American goods and services but rather than go down the usual diplomatic channels, which can take years, he is attempting to reach his end goal of a better deal for the US by, shall we say, “different” means. I suspect that once all the bluster dies down revised trade agreements will have been struck and we can move on to the next “disaster.”
I believe the most important announcement in the last few weeks which will have far more impact on all of us than these “trade tantrums” was the government stating that funding for the NHS will increase and that this will be at least partly funded by tax rises. This was before the white paper calling for increased spending on defence to meet our obligations as well as public sector workers starting to get proper pay increases in the current pay round.
As you may be aware it is now November when the Budget is announced and although there would be nothing stopping the Chancellor changing tax rates prior to then, I suspect these announcements have been made to soften the blow when he does make his speech at that time. So how will the additional tax be raised?
Although it is possible that all rates of income tax will increase, a la Scotland, there is probably some lower hanging fruit he could pick before going down that route. As a starting point it would come as no surprise to me if he removed the difference in rates between capital gains tax and income tax.
At present a high earner, £150,000 income plus, pays 45% income tax (46% in Ecosse) but only 20% on capital gains. A basic rate tax payer pays a reduced rate of 10%. Removing this anomaly is unlikely to be a huge vote loser but it would alter a lot of peoples financial planning which has been based on these advantageous rates.
Dividend taxation has already been attacked with the tax free threshold on these falling to £2,000 this year from £5,000 previously so it would be no surprise if this was removed altogether and possibly the rates of tax due on dividends increased to those of income tax. Once again, this is not a move that will be deemed “un-populist” which seems to be key politically at the current time.
Could ISAs be attacked? As a company we have a significant number of couples that have well over £1m between them sheltered in these tax free vehicles so it would be no shock if a limit was introduced that would preclude any more being invested once they reach a certain level.
Whatever the changes one thing we can be sure of is that it is unlikely any of us will pay less tax next year and our role as your advisers is to ensure we try and minimise the impact this will have on your plans, which I can assure you we will continue to do to the best of our ability.
In the meantime if we believe the pundits we could make a killing backing England for the World Cup but strangely I see they are still only fifth favourite in the betting. It seems not everyone believes the hype….