We roundup the rumours and ask leading industry figures for their expert opinions on this week’s Budget.
The countdown has begun. George Osborne, the Chancellor of the Exchequer, will be rising to his feet in just a couple of days on Wednesday 16th March to deliver this year’s Budget.
But what will it include? What may happen to our pensions? Are we going to be paying more to fill up our cars?
We take a look at the rumours doing the rounds and talk to some experts for their predictions on what they think will happen on the day.
Driving
The AA has warned drivers could be hit with a hike in Insurance Premium Tax (IPT). The group predicts the Chancellor will increase IPT by 3% taking the tax from 9.5% to 12.5%.
The charge is levied on insurers but gets passed onto customers and impacts the cost of car insurance and breakdown cover.
Hiking IPT could add £37 to the average car insurance premium rising to over £80 for young drivers, according to the AA.
Edmund King OBE, AA president, said: “If the Chancellor does this it will be the only tax to have doubled in half a year.”
A visit to the petrol pumps could also more expensive, according to Simon Williams, the RAC’s fuel spokesman. He said: "Throughout the last parliament he [the Chancellor] chose to maintain an even keel by freezing duty at 57.95p-a-litre after his 1p-a-litre cut in the 2011 Budget. But we fear he may now seek to take advantage of low oil prices to increase it."
Williams warned that hikes would have a negative impact on economic growth, adding that motorists in the UK pay higher rates of tax on fuel than most of Europe.
The Chancellor hasn’t ruled out a rise. Speaking on the BBC’s Andrew Marr Show over the weekend he said: "On fuel duty, we had a manifesto commitment there and we have pencilled in fuel duty plans going forward but what I would say is, every time we can have our economy more competitive, we do."
Alcohol and tobacco
Experts predict the Chancellor is likely to raise tobacco duties in order to raise some quick cash, but is unlikely to make any changes to alcohol duties.
Beer tax, which has been cut over the last three Budgets, is expected to be frozen at 52p a pint.
Pensions
This is the big one, or at least we thought it was going to be. After months of speculation about the Government drastically reforming the tax relief paid on your pension contributions, it now appears that the plans have been shelved, with a Treasury source saying last week that "the time isn't right" for more wholesale changes to that area of pensions.
There are still plenty of other pension changes that could be on the cards though. Tom McPhail, head of retirement policy at Hargreaves Lansdown, pointed out that as the Government still needs to raise money, pensions will remain a tempting target.
Measures could include reducing the Annual Allowance, cutting the Lifetime Allowance level and extending the Annual Allowance Taper.
VAT
Blick Rothenberg partner Alan Pearce thinks the Chancellor might extend the reduced rate of 5% VAT to items that are currently zero-rated. These include things like food, newspapers and books, children’s clothing and even public transport and new house building.
Pearce says: “These changes would bring us more into line with the rest of the EU. The additional VAT cost for individuals could be offset by increases in child allowance and tax credits for the less well-off, thereby targeting the tax increase to those who can afford to spend and pay.”
Global tax and auditing firm RSM also thinks changes to VAT are likely. Despite there being a ‘tax lock’ clause in the Finance (No 2) Act 2015 stating the rates of VAT will not rise, the firm says there is scope for changes resulting from court or tribunal decisions.
Income Tax
It’s widely predicted that the Chancellor will make changes to the personal allowance for low earners, but he may also give higher rate tax payers a break too.
Adrian Lowcock, head of investing at AXA Self Investor, says we could see the level at which higher rate tax is charged increased, which would take more people out of the 40% tax band.
The higher rate kicks in at £42,385 currently and will rise to £43,000 from next month. However, RSM, among others, suggests the new threshold could be as high as £50,000 and could be brought in much sooner than previously expected.
Salary sacrifice
Some employers offer salary sacrifice schemes, which allow workers to pay for benefits like childcare, pension contributions and gym memberships out of their pay before it gets taxed.
But experts predict the Government could target this work perk to raise revenue.
One way the Chancellor might try to do this according to John Harding, employment tax partner at PwC, would be for National Insurance to be levied on the salary sacrifice amount.
Maike Currie, Investment Director at Personal Investing for Fidelity International, reckons if the charge was levied against every employer’s payment into a pension then around £15 billion alone could be raised for the Government’s coffers.
Redundancy payments
Currently there is no Income Tax or National Insurance to pay on redundancy packages up to £30,000, which makes it a target for Osborne.
Iain McCluskey of PwC says: “The Chancellor has been consulting on whether this regime should be so generous, especially to those employees who have not had a long tenure of service before they receive a termination payment. He may look to bring these payments into the scope of National Insurance, and introduce a ‘per year of service’ tax-free amount.”
Property
David Hollingworth, spokesman for broker London & Country, is hoping for a relatively quiet Budget, but expects to hear more detailed information about the looming introduction of extra Stamp Duty on second homes.
He suggested there may be some tweaks to the scheme, including introducing exemptions for investors with large buy-to-let portfolios or parents who want to buy with their children.
Meanwhile Robert Walker, partner at PwC, thinks the Chancellor could go further on tax-led reform for the buy-to-let market.
Business
The Chancellor is expected to announce the results of the business rates review in the Budget and faces a tough balancing act to maintain £23 billion of income while recognising the burden the tax puts on businesses.
Philip Vernon, PwC business rates leader, said: “The Government may take this opportunity to announce changes to reliefs with a view to simplifying the business rates system, as well as take steps to help local authorities prevent empty rates avoidance.”
It’s also expected the Chancellor will announce a ‘Business Tax Roadmap’ to give businesses greater certainty and clarity on business taxes.
Investments
The best outcome would be for nothing to change as far as the regulations governing ISAs are concerned, according to Darius McDermott, managing director of Chelsea Financial Services.
"It would be nice if they stopped tinkering with everything for now," he said. "Most people can’t save £15,000-a-year anyway so that limit is enough for the vast majority."
Have your say
Now you’ve heard what the experts think, have your say in Budget 2016: what do you think George Osborne should do?
Follow what happens on the day in our live blog or using Twitter via @lovemoney_com.
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