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Budget Predictions for March 2012

UK based chartered accountants Grant Thornton’s 10 Budget Predictions for 2012:

Francesca Lagerberg, head of tax at Grant Thornton, runs through her top ten predictions for George Osborne’s Budget on 21 March 2012.

Personal allowances

Osborne will reaffirm the coalition target of raising the personal allowance to £10,000 by April 2015. Although there are suggestions of a more rapid rise, this is unlikely to feature as the cost of implementing it is so high.

Pension tax relief

There is speculation that the government will limit pension tax relief to the basic rate of 20% in the March Budget, so it’s advisable to take advantage of the rule that allows individuals to receive any tax relief which hadn’t been claimed in the previous four years.

It is worth bearing in mind that this rumour has appeared before many of the last budgets. The difference this time is that it appears to have more traction particularly given the reinvigorated support from the Liberal Democrats.

If this change occurs it will affect the pension contributions of higher earners to help pay towards lifting everyone earning under £10,000 out of tax. The controversial plans could lead to a potential saving for the Exchequer of billions of pounds.

For higher earners, this move will feel like a tax rise as when paying the top rate of tax you can claim relief of up to 50% on you pension contributions.

Tax avoidance clampdown

Following the Barclays bank story, we can be confident that the Chancellor will mention tax avoidance and the need to close down loopholes, especially focusing on higher rate tax payers and large corporates.

I suspect that Osborne will say the Government plans to adopt a general anti-avoidance rule (GAAR) along the lines outlined in the recent independent report by Graham Aaronson QC.

Stamp Duty Land Tax

There has also been a great deal of publicity about stamp duty avoidance. We expected the Government to act in the Autumn statement so it would be a surprise if did not provide clarity and close the perceived existing loopholes in March.

Statutory Residency Test

As already announced, the statutory test of residence will be deferred until 2013 but it’s likely we’ll hear a commitment to press ahead with establishing the test.

I also expect Osborne to give more details about the plan to encourage wealthy non-domiciled individuals to invest in UK businesses. Considerable detail about this was provided last December.

Higher Rate Tax Payers – 50% tax

We do not yet have the report on the money raised by the 50% tax rate but Osborne cannot remove it while public sector workers are undergoing a pay squeeze.

Therefore, I expect it to stay until the end of this parliament although it is unlikely that we will get any firm date for it to be scrapped outlined this time.

Mansion Tax

It is likely that the Chancellor will rule out the creation of two new top-level council tax bands or a ‘mansion tax’. The Liberal Democrats believe installing this measure would enable the Treasury to raise the income tax threshold to £10,000 but Conservative ministers oppose the measure as it breaches the Tory manifesto commitment not to revalue homes for council tax.

Support for Green Initiatives

Perhaps to round off his speech the Chancellor could give a nod to the green lobby by announcing support for green projects, but at the same time say that the fuel duty escalator will be frozen for the time being as a help for motorists.

We’re likely to have an update on the Green Investment Bank, either hearing of the first projects it will support or a projected timeline for the projects commencing.

Luxury VAT Rate

There is an outside chance the Chancellor will impose a rate of VAT at 25% for luxury items. This would raise additional revenue for the public purse on items that are not deemed ‘necessities’.

This move will not go down well with wealthy individuals and those that wish to purchase luxury items, especially those who are also caught by the top rate of tax. It may even go as far as driving these individuals abroad.

Competitive UK

The government will want to continue making the UK an attractive place to do business and in order to do that it has already set out a corporate tax road map around controlled foreign companies and the patent box regime.

The Chancellor will reiterate these changes but may announce minor tweaks in response to consultation.
Read more: http://www.ifaonline.co.uk/ifaonline/feature/2157633/grant-thorntons-budget-predictions-2012#ixzz1oQiZ7I6e