Budget Take Two: Will Election Promises Be Made A Reality?

Income tax

Income tax (along with National Insurance and VAT) is to be the beneficiary of the tax lock, so there will be no increases in tax rates over the course of this parliament. The most notable point of this legislation is what it leaves out, so there is no commitment to maintaining or raising the income tax thresholds. With the Government committed to raising the basic rate threshold, taxpayers in the higher bands should not be expecting any positive moves in that regard soon.

Pension tax relief

The problem with committing to not raising the headline rates of tax in an era of continuing austerity is that it leaves the Government with the question of how to increase tax revenues. The answer is likely to be the continued restrictions on tax relief for contributions for higher rate taxpayers, with those earning more than £150,000 being progressively restricted to an annual allowance of £10,000. Top rate taxpayers would be well advised to consider whether they should either top-up their pensions or bring forward regular contributions before the Emergency Budget.

Capital gains tax

Capital gains tax has been notably not included in the triple lock guarantee. Rates presently stand at 28% for higher rate taxpayers, and indeed were set at that rate in the then government's Emergency Budget held in June 2010 - increasing the rate from the previous 18%. So one might be inclined to think that there should be little temptation to play with the rate further, yet when the Chancellor's hands are tied on the other direct taxes as a result of the triple lock, this might suddenly look rather more likely.

Entrepreneur's relief

Even if the headline rate of CGT doesn't change, there can be said to be risk exposure around Entrepreneur's Relief. This is currently a popular and successful relief which effectively gives a £10m lifetime allowance for gains on certain type of active business investments to be taxed at the 10% rate - so sort of but not really like Business Asset Taper Relief. An easy way of saving the Treasury money would be to reduce or restrict this - whether by reducing the lifetime allowance, increasing the rate at which it applies or significantly reducing the extent of the relief. It is understood that it was estimated to cost £2.9bn in 2013-14 and had been estimated to cost £900m. So a £2bn additional cost (even if it is largely down to an increase in the headline capital gains tax rate) is likely to look rather obvious and pose a risk to...