Fishing the tax pond
We know that the Chancellor is still looking to make substantial savings. However, with increasing pressure mounting to remove pay restrictions on public sector and NHS workers he will have no option but to find additional income from somewhere. For the impending Autumn Budget, I can only suspect that the Chancellor will be fishing around to make quick, easy wins in order to raise more tax but the question is where will he take it from?
One area, which it is estimated could raise as much as a staggering £8bn a year, is the taxation on gains on the sale of UK based commercial property owned by offshore companies. It is argued that in addition to raising much needed income it will provide an even playing field for UK individuals and companies that own commercial property. There would also appear to be no detriment to the UK as a place to do business, as many countries including the USA, Australia, Germany and France levy tax on such gains. However the Government appear to have no appetite to go down this route and we will therefore be likely to continue to go with piecemeal changes, such as those made to pensions over the years, as they are seen as an easy target.
Something that has been mused over the years is that the Chancellor could cut pension tax relief for high and additional rate tax payers. I’d like to think that this is unlikely to happen as the complexity around defined benefit schemes would be a big problem. You can imagine giving a ward manager or a police sergeant a pay rise of a couple of per cent then taxing them on the value of the accruing pension benefits provided by their employer. We’d probably have a mutiny on our hands, but as previous Budgets have taught me anything is possible.
If we are going to see any changes to pensions it could be the cutting of the annual allowance to £30k. As we’ve had to deal with the reduction in the annual allowance twice before, this could be implemented with little difficulty and wouldn’t cause too much pain for the majority of people so it could be the best of a bad bunch.
There’s still the possibility that this will be an uneventful Budget for pensions, but it’s important to note that the Government had previously committed to not increasing income tax, national insurance and VAT, so the pond is getting smaller and smaller. A potential U-turn on any of this could be fishing in troubled waters.
This blog first appeared in Professional Adviser