When the Chancellor delivered her first budget in October, the focus was on growing the economy. It was hoped at the time that future economic growth would eliminate the need for future tax rises and avoid having to cut public expenditure. However, since late October, things have changed and the hoped-for expected growth has already halved in the current year from 2% to 1%. The pessimistic outlook from the Bank of England, the turbulence caused by the new administration in Washington and the ongoing conflicts in Ukraine and the Middle East created less than ideal circumstances for the Chancellor to deliver her spring economic statement.
As ever such events are well trailed and the proposed reduction in civil servant numbers, the departmental spending cuts and the reduction in benefits announced today will not have come as a surprise. At one stage there was the prospect of increases in tax being announced but they did not materialise and for now the breaking of a clear election pledge not to raise taxes appears to be a bridge too far. The Chancellor limited herself to announcing further anti-avoidance measures which are expected to raise an additional £1bn. Having said that, unless things dramatically change in the next six months, the budget this autumn could well see additional taxation being raised. Trying to keep both international money markets and your own backbenchers happy could well be an unsolvable problem for the Chancellor.
Whilst no new taxes were announced today, it should be noted that the proposals announced last October will soon be coming to fruition. In April, the employer’s National Insurance rate will rise to 15% and this together with the proposed increases in the national minimum wage have already had an unwelcome impact on business. The full extent of this will, however, not be felt for many months to come. Several of the changes announced last autumn will take longer to arrive. The proposed changes to inheritance tax relief for business and agricultural property are not due to come into effect until next April. Whilst there is ongoing technical consultation in respect of the impact of these changes, it would appear that the reduction in business property relief and agricultural property relief from 100% to 50% will take place. The government projections in respect of the amount of inheritance tax these changes will raise would appear to be significantly understated and the estates of business owners and farmers who die post April 2026 could be in for a large tax bill. Having said that, there is still significant scope for estate planning including the use of trusts, which can not only reduce the exposure to inheritance tax but help protect family wealth for the benefit of future generations. There is still time for careful planning before the new rules kick in.
For those thinking of selling their business, there is still an advantageous tax relief available. Business Asset Disposal Relief can reduce the capital gains tax rate from 24% to 14% on the first £1m of capital gain for disposals after the 5th of April 2025 but before the 6th of April 2026. As for those with a pension scheme, the advice must surely now be to consider using the funds in their scheme during their lifetime otherwise any funds remaining inside the pension post April 2027 could be subject to not only inheritance tax but also to income tax. Pensions are no longer an inheritance tax saving device but are still an important means of providing for income in retirement.
The spring statement is more of an interim report on the economy, rather than a money raising event. However, unless there is a significant change in the wind direction, we could see a return to tax increases this autumn.