Once again, we are all buoyed up and ready for the approaching Spring Budget of 2024 tomorrow lunchtime. The common consensus is that there will be some major overhauls, but with the Lifetime Allowance reform still fresh in people’s minds, let’s hope they don’t announce another Alan Turing style riddle for us all to decipher, writes IFA Magazine’s Senior Financial Reporter, Jenny Hunter.
The Spring Budget coupled with the looming election later in 2024, may leave many asking, is this fake news? Will the announcements be purely for poll pleasing or will they make Hunt a hero? More importantly, which will be here to stay, and which will be ripe for reversal if a new government gets elected.
Already, the inboxes of the editorial team and I here at IFA Magazine have been inundated with lots of analysis and predictions from experts from across the financial services spectrum. And please do keep them coming!
On the topic of potential reforms in the pipeline, Nick Henshaw, Head of Intermediary Distribution at Wesleyan, said: “As we’ve seen with the abolition of the LTA, reforms that are potentially divisive can seed significant uncertainty. Change can be good and is necessary in many areas – but only in so far as it’s something that’s broadly backed by all and isn’t at risk of being overturned again soon.”
The swirling news stories out there are gathering speed and momentum, and so we have broken down the psychic predictions all in one place for you. Crystal balls at the ready!
Increase The Personal Allowance
By far the most popular prediction, according to Royal London’s recent poll, was an increase in the personal allowance with 71% of respondents hoping to see an increase in the allowance to £15,000, and a third (34%) looking for it to rise in line with inflation. Many personal tax thresholds are currently frozen until 2028, the effect of which means that the real value of the personal allowance is significantly reduced by fiscal drag.
Whilst it may be high on individual’s wish lists, and it may prove popular with voters, it would be a bold move to retreat on the previously announced freezes.
Steven Cameron, Pensions Director at Aegon, says: “Increasing the personal allowance by, say, 10% to £13,827 would mean millions of people earning above this amount would be £377 better off in the first year. For anyone earning less than £50,270, this is more than the boost to take-home pay that would be generated by a 1% cut to income tax.”
Income Tax Cut
Tax cuts always make good headlines, which may be Hunt’s strategy, but if a cut is on the horizon, it certainly won’t be a big one.
Oliver Jones, head of asset allocation at Rathbones Investment Management, said: “The shadow of the impending general election will loom over this Spring Budget, which is almost certain to be the final ‘fiscal event’ of this Parliament.”
“As for the specific measures due to be announced by the Chancellor (or promised by his opposite number), we wouldn’t pay too much attention to any headline-grabbing pre-election announcements about tax cuts. Both parties’ commitment to strict fiscal rules following the Truss-Kwarteng ‘mini-budget’ debacle has limited their ability to deliver really consequential giveaways, and markets are inclined to view unfunded tax cuts dimly with inflation still too high. At the 2023 Autumn Statement, headline tax cuts were simply offset by less visible de facto increases elsewhere, and something similar might happen this time too.”
Another reason Hunt may not be too keen on this course of action is that a decrease in income tax naturally becomes a decrease in pension tax relief, which is applied at the individual’s highest marginal rate. That could prove to be an unpopular announcement when those dots are connected.
ISAs & LISAs
ISA reforms are already in planning for April, and from the new tax year individuals will be able to subscribe to multiple ISAs of the same type (except LISAs).
On top of this, many will be hoping to see an increase in the annual £20,000 allowance which is split across all ISA products. Whether they will get their wish we will have to wait and see.
LISAs are also not top-tier at the moment, having fallen out of favour with savers since their launch.
Kate Smith, Head of Pensions at Aegon, comments: “When the Lifetime ISA (LISA) was launched in April 2017, it was designed to offer both a tax-incentivised means of saving for a first house and also an alternative vehicle for saving for retirement. However, various rules and restrictions are limiting its appeal, and it’s failed to keep up with the times, especially for those wishing to use a LISA to buy their own home. Now may be the time for the Chancellor to announce a raft of modernisation changes.”
Other predictions around LISA reform involve increasing property price limits and reducing, or even getting rid of entirely, the 25% penalty for early access.
We couldn’t let this section go without mentioning the ‘British’ ISA. Although there is widespread confusion about what this will entail, it is apparently firmly on the cards. This is by far the most intriguing ISA announcement in a while, though adding more complexity to an already unnecessarily complex area may not be the wisest decision if Hunt is trying to please the polls.
Inheritance Tax Overhaul
The rumour mill led us to believe that IHT was on the chopping block in the Autumn Statement 2023, but it was not to be. It’s back on the agenda as a firm favourite.
There’s a slim to none chance of IHT disappearing entirely, but a simplification of the rules would be welcomed and a change to either the rate of IHT or the allowances within it would be celebrated.
Sian Steele, Head of Tax at Evelyn Partners said: “A move to reduce inheritance tax is now thought likely at the spring Budget, having failed to materialise at the Autumn Statement. Speculation again is that the 40% will be halved, but families with more modest estates that are being drawn into the IHT net would probably rather see the nil-rate band raised. The £325,000 allowance has been frozen since April 2009 and would now stand at £489,700 had it risen with inflation.”
It might be time, in this case, to give the people what they want, or at least some of what they want, and tick this off the agenda for now.
A pension is for life
As part of the Autumn Statement, the term ‘pot for life’ filled the air, but then disappeared on the wind. There are hopes that more information may be announced about this incentive, although nobody is expecting much else more concrete in terms of pension announcements.
The only other consistent whisper is regarding auto-enrolment, but having already seen recent changes, any further tweaks may not materialise.
Investec Wealth & Investment UK shared: “Pension announcements could include more detail on the lifetime provider model, or ‘Pot for Life’ while the age for being automatically enrolled into workplace pensions could be reduced to 18. There may also be changes to the pension saving annual allowance focused on the NHS.”
Wednesday Wishes
It’s clear there are lots of long wish lists out there for the Spring Budget 2024, many of which are unlikely to come true. There is only so much that could and should be done all in one go!
We’ll pop together a full breakdown of all those announcements most likely to affect advisers and their clients after the event, but for now, we will be getting in the popcorn and preparing for Wednesday along with everyone else.
Hopefully, it will all go off with a bit more bang than the Autumn Statement, which was more fizzle than fireworks.
