The Chancellor, Jeremy Hunt, will deliver his Autumn Statement to Parliament on Wednesday, 22 November.
We are in an economy which is flirting with recession, public debt and interest rates are the highest they have been in generations, inflation is stubbornly high but on a downward trajectory and many people are facing a cost of living crisis. There is a general election on the horizon which currently looks as though it will trigger a change of government. It is a difficult set of cards that has been dealt to the Chancellor.
If the general election was not so close, it would be easy to predict that the Autumn Statement would be a dour affair with nothing significant to report. However, with a general election only a year away, any tax changes are likely to be more politically motivated as opposed to being based on economic reality.
Is there likely to be any personal tax cuts?
The Chancellor has indicated that reducing inflation is his priority and has signalled that there will be no tax cuts for the foreseeable future. Income tax thresholds have been frozen until 2028. This means that you can earn £12,570 until then before you start paying tax. The higher rate threshold has also been frozen at £50,271 as its starting point. As the thresholds are frozen, if your earnings increase over the next few years, you may find yourself tipping into a higher band and paying more tax, especially whilst wage growth in the UK remains strong.
Prediction – It is very unlikely that the Autumn Statement will announce any reduction in the rates of income tax, increase in personal allowances or the threshold at which the higher rate of income tax applies. However, there may be an announcement that there will be a scaling back to 2026 from 2028 of the date to which tax thresholds are frozen.
Will inheritance tax be abolished?
There has recently been speculation that the government is looking at the idea of potentially scrapping inheritance tax (IHT).
At present, IHT is charged at a rate of 40% on the value of your estate above £325,000 when you pass away. If you’re married, you can combine the allowance with your partner meaning no tax is likely to be payable unless the estate is worth more than £650,000. There is an additional allowance of £175,000 towards a main residence if it is passed to children or grandchildren, which means you may be able to pass on an estate to the value of £1m without incurring IHT.
What changes have been talked about?
- Reducing the 40% rate with a view to eventually scrapping IHT altogether.
- The £325,000 nil rate band has been frozen since the 2009/10 tax year. It is set to remain at this level until April 2028. The 2028 date can be brought forward to 2023 with the £325,000 nil rate band being increased.
- IHT is a very complex tax with lots of reliefs and exemptions. IHT may be simplified by having a nil rate band of say £500,000 per person (£1,000,000 for a couple) and IHT payable on the excess at 20% or 25%.
The Labour party are unlikely to cut rates of IHT. In fact, the opposite may be on the cards. There is speculation that some of the reliefs available to farmers and entrepreneurs may be reduced – this relates to Agricultural Property Relief and Business Property Relief.
Prediction – The Chancellor, either in the Autumn Statement or next year’s Budget, will announce the Government’s intention to either scrap IHT, increase the nil rate band and/or reduce the rate at which IHT is charged. However, this may be a moot point as the polls indicate that Labour is significantly ahead and likely to form the next Government. In this scenario, the likelihood is for the IHT tax take to increase with a reduction in certain allowances.
One thing that is certain, Jeremy Hunt’s Autumn Statement will be very interesting as it will set out differences in the future tax intentions on which the forthcoming election will be fought.