There were no tax rises announced at the Spring Statement this week, as the chancellor had signalled. However, the worsening state of the UK economy and public finances mean many experts are convinced that tax rises will be back on the table at the autumn Budget.
“We might be in for another blockbuster autumn Budget,” says Paul Johnson, director of the Institute for Fiscal Studies, the influential think-tank.
Nimesh Shah, chief executive of tax experts Blick Rothenberg, says he fully expects the chancellor to do something significant in the autumn. “The [country’s] growth projections do not look good at all. The government is going to run out of money quickly.”
The wealthy are still absorbing tax changes made in the last Budget, with increases to private school fees and changes to non-dom rules causing huge shockwaves. Next month, the loss of stamp duty reliefs will hit the property market at a time when buy-to-let landlords are braced for more costly regulation.
The impact of higher national insurance rates for employers has already hit the jobs market, making it harder to secure your next role — or your next pay rise. Further down the tracks, plans to levy inheritance tax on pensions have upended years of careful financial planning — so the prospect of yet more tax rises is deeply worrying.
How can you prepare your finances for the next six months — and what might come after? FT Money looks at your options.
Tax
The challenging economic outlook could easily wipe out the chancellor’s £9.9bn headroom on the fiscal rules, leading experts to fear that the next six months will be characterised by frenzied speculation about potential tax rises.
“What the chancellor has all but guaranteed is another six months of damaging speculation and uncertainty over tax policy,” says Johnson. “That didn’t go well between last July’s election and October’s Budget. I fear a longer rerun this year.”
The potential loss of tax reliefs on pensions and Isas provoked the most panic in the run-up to last October’s Budget, with savers withdrawing tax-free cash, and investment platforms have reported much higher than usual inflows this year as Brits rush to stuff money into tax-sheltered investments in case allowances are changed.
Tax experts say clients are also concerned about further increases to capital gains tax and inheritance tax. Despite Reeves putting up CGT rates at the last Budget, Shah anticipates there could be further changes, including the introduction of exit taxes for those — including non-doms — leaving the country.
Reeves confirmed the scrapping of the concept of domicile in tax last year, ending a key perk for wealthy foreigners in the process. The measures, which included removing the ability of non-doms permanently to shelter assets held in trust from UK inheritance tax, are due to take effect next week.
Further ahead, fiscal drag — where wage growth, inflation or frozen tax bands, pushes taxpayers into higher-income tax brackets — has raised billions of pounds for this government and the last, but the challenging outlook threatens any hope that the deep freeze on income tax thresholds will be thawed.
The IFS estimates a 20 per cent increase in the number of taxpayers hit by the “six-figure salary trap” in the next three years, with 2.2mn expected to be hit by 60 per cent marginal income tax rates as the personal allowance is tapered above £100,000.
This is also the point at which childcare benefits are lost, and experts warn the “behavioural response” from higher earners cutting their hours or paying more into pensions to avoid tax could have consequences for workplace productivity and economic growth.
Elsewhere, the tax system is being tightened to collect taxes faster. The Spring Statement included measures to increase the rates at which late payment penalties are charged under the government’s Making Tax Digital programme.
The MTD changes will affect VAT taxpayers from next month and impact self-employed people and landlords with at least £50,000 annual earnings — when they join the programme in April 2026.
The new rates will be 3 per cent of the tax outstanding where it is overdue by 15 days — up from 2 per cent — plus another 3 per cent when it is overdue by 30 days, plus 10 per cent per annum where tax is overdue by 31 days or more.
The Institute of Chartered Accountants in England and Wales has described the increase as “very significant” and warned that timely payments would be “more critical than ever for taxpayers and businesses”.
“Time to leave the country” is a popular response to the fear of future tax rises. Shah’s experience is that British people, not just non-doms, are “jurisdiction shopping” more than previously, especially as the abolition of tax domicile means Britons can escape IHT after 10 years residence outside the UK.
Michelle Denny-West, a tax partner at Moore Kingston Smith, says she has seen much greater interest from clients in gifting, including to charity, as a way of mitigating potential further inheritance tax changes.
However, advisers warn against making rash moves without knowing all the facts. Denny-West says some people had made “knee-jerk decisions” in the run-up to the autumn Budget and created more problems for themselves down the line. “It’s important not to let the tax tail wag the dog,” she says.
Investment
Potential Isa reforms were trailed in the Spring Statement documents, with the government vowing to “get the balance right” between cash and equities to earn better returns for savers and get more people investing.
Reforming the UK’s Isa regime has sparked a fiery debate in the City in recent months between those who want to clamp down on the amount people can hold tax-free in cash and staunch defenders of the Cash Isa.
Currently, individuals can keep £20,000 a year free of tax in Isas, of which there are four main types including cash.
Asset managers and investment sites have urged Reeves to “simplify” the regime, just having one Isa within which people can switch between cash and shares.
Proponents of capping cash Isas, which house about £300bn, argue individuals would be better off investing in the stock market in the long term and that funnelling some of this money would help support London-listed equities. Fidelity International told the FT last month that it proposed a single Isa for cash and shares with a lower limit of £4,000 for cash.
But critics warn that scrapping or limiting tax breaks would not necessarily lead to cash being channelled into UK equities and some are lobbying for Isa tax breaks to be restricted to UK shares only.
Dan Olley, chief executive of investment site Hargreaves Lansdown, recently told the FT that scrapping the standalone cash Isa would be a “dangerous” move with “serious consequences for many UK savers”.
According to HM Revenue & Customs, 67 per cent of cash Isa users add no more than £5,000. “So there is no wall of cash sitting in Isas waiting to come into stocks and shares,” says Olley. “If there were it would already have come.”
Advisers say individuals should concentrate on using up as much of their tax-free allowances as possible, particularly pensions and Isas, to mitigate against any potential future cuts to these wrappers.
“The days of the £20,000 allowance for cash Isas may well be numbered,” says Jon Hickman, tax partner at BDO. “Those keen to invest their cash in an Isa wrapper might wish to consider taking advantage of their full entitlement in this tax year and next.”
Property
While no new policies were announced at the Spring Statement, the property market is still feeling noticeable effects from the chancellor’s last fiscal event.
In October’s Budget, Reeves did not extend relief on stamp duty, meaning the thresholds at which the land transfer tax is paid will change for purchases that complete after April 1. The changes matter most for first-time buyers, for whom the zero stamp duty threshold will fall from £425,000 currently to £300,000.
This weekend is expected to be one of high drama for house movers — first-time buyers in particular — who are racing to complete deals before stamp duty rates rise on April 1. Missing the deadline could cost up to £11,000 for first-time buyers, according to Foxtons, an estate agent. Barclays estimates the average cost at around £6,500.
The impending shift has had a big impact in London — where eight out of 10 first-time buyers will have to pay stamp duty from April, compared with half at present — because properties are more expensive. Buyers have been racing to complete by the deadline, with many of those who missed the window having to look at cheaper locations away from the capital city. First-time buyer demand is 3 per cent lower in London compared with this time last year, while demand is rising everywhere else in the country, according to Zoopla, an online property portal.
New economic forecasts released alongside the Spring Statement give reasons to be cautious about the gradual recovery of the property market. Markets had largely factored in the fiscal update, with little change to traders’ expectations of two interest rate cuts this year. But the forecast was a reminder that rates may not fall very far or fast.
The OBR modestly increased expectations for interest rates, which would mean mortgage rates around 0.2 percentage points higher on average over the five-year forecast. Forecasters flagged that average mortgage payments for UK households are still rising, because many homeowners are still on cheaper fixed rates and have yet to remortgage.
Following the statement, attention for the property market will turn to the debate about loosening lending standards to make it easier to finance a new home.
“The top priority should be an easing of mortgage regulations, which will support first-time buyers, an important buyer group for homebuilders and the broader market,” says Richard Donnell, executive director at Zoopla. The Financial Conduct Authority has said it will review the rule book this year, which the chancellor supports.
Pensions
Anyone hoping that the Spring Statement would bring more clarity on government plans to bring pensions within scope of inheritance tax by April 2027 would have been disappointed. The measure was one of the biggest personal tax changes of last autumn’s Budget.
The Treasury received hundreds of responses to its consultation on the details of how it would be implemented, with some of the UK’s biggest wealth managers calling on the policymakers to scrap its plans owing to the complexity and delays they would bring.
“Bringing pensions into IHT is a huge, complicated and damaging change that will inevitably result in huge delays in beneficiaries being paid on death,” says Tom Selby, director of public policy at AJ Bell, the investment platform.
But even if the government tweaks the process for how inheritance tax is applied, the chancellor is determined to bring pensions within scope of death duties.
As a result, some financial advisers have encouraged clients to revisit investment plans and consider when they might spend or gift pension assets when they previously would have been drawn last as part of estate planning.
Under the government’s proposals, beneficiaries risk having to pay income tax and inheritance tax on passed-down pensions if the age of death is over 75, resulting in a potential tax rate of up to 67 per cent.
But David Goodfellow, head of wealth planning at Canaccord Wealth, says people should wait until details of the legislation are finalised before acting, as it is unclear whether any transitional protections will be granted.
“Our advice at the moment is for clients to hold fire until we actually see the detail — the devil is always in the detail — but stopping some clients from acting prematurely is proving difficult,” he says.
HMRC says it will publish a formal response and draft legislation “later in the year”.
