A look at the key changes Chancellor Philip Hammond will definitely announce in his UK Spring Budget speech, along with a few that he might.
The Chancellor of the Exchequer, Philip Hammond, will deliver his first Spring Budget today (March 8).
While this represents the chancellor’s opportunity to announce a raft of new plans to boost the economy, this year’s Budget is unique in that much of the focus will be in confirming the raft of tax changes already lined up.
As George Bull, senior analyst at accountants RSM, notes: "In the medium term, [Hammond] may have little choice but to raise taxes, but in the short term he will be well aware that the bewildering range of tax changes introduced by his predecessor have left businesses and individuals alike suffering from tax fatigue.”
For that reason, this preview article looks primarily at what is definitely changing, but we have included some of the rumoured changes where we felt it was relevant to your finances.
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Buy-to-let clampdown to bite harder
The squeeze on Britain’s landlords will increase, as the chancellor looks to boost his coffers from a popular target.
Last year saw the introduction of the 3% Stamp Duty surcharge on anyone buying a second home.
This year, the buy-to-let (BTL) brigade will see their mortgage tax relief reduced.
Up until now, landlords have been able to deduct all their mortgage interest (and other costs associated with a property) from rental income before calculating their tax bill.
However, this will fall to 75% as of April 6, and will be gradually reduced until it is scrapped in 2020 and replaced with a flat 20% tax relief.
For landlords with hefty BTL mortgages, tax bills will rise by hundreds, or even thousands, of pounds.
Need to cut your BTL costs? Read our guide
Pensions a key issue... again
As always seems to be the case, pensions will be one of the main talking points of the Budget.
There’s a lot of speculation, but one thing we know for certain is that the State Pension will rise by 2.5% in April.
It means anyone on the flat-rate State Pension will see their weekly payments edge up £3.90 to £159.55 from April, while those on the ‘old’ State Pension will rise to £3 to £122.30.
What else might we see? The chancellor could confirm that he will scrap the State Pension triple lock in 2020, which guarantees its value will rise by the same as average earnings, inflation, or 2.5%, whichever is the highest.
The lock was always supposed to be a temporary measure to boost retirement incomes, but confirming its end date will be controversial nonetheless.
Tom Selby, senior analyst at stockbroker AJ Bell, says the Government could also look to increase flexibility in accessing their State Pension – with strings attached, of course.
“The Government could look at allowing people to take their State Pension earlier, with the amount they receive adjusted so it is cost neutral for the Exchequer.
“The Chancellor will also inevitably face pressure to make the system fairer, particularly given the huge variations between the life expectancy of different regions and socio-economic groups.
“However, means-testing has been a complex nightmare in the past and the Government must avoid recreating such complexity at all costs.”
Many over-55s will be hoping the chancellor backtracks on plans to reduce the amount someone can save into a pension once they have used the pension freedoms to access some of their pot.
Hammond proposed in his last Budget that the Money Purchase Annual Allowance (MPAA) could be slashed this April from £10,000 to just £4,000.
The idea is it will stop some saver from claiming further tax relief on any new contributions made having just taken their pension benefits.
However, critics say it flies in the face of the new freedoms, as those who access funds are effectively being punished with a huge drop in their annual allowance.
Savings to improve… slightly
The amount you can save into a tax-free ISA each year is set for a huge leap from the current £15,240 to a nice, round £20,000.
The increase will coincide with the launch of the Lifetime ISA, which offers a savings bonus to those setting money aside for retirement or a deposit on a house, meaning you now have six different ISAs to choose from.
Of course, both these changes have been widely publicised and have always been part of the Government’s long-term strategy.
Will there be any surprise handouts for hard-pressed savers looking to at least keep pace with rising inflation?
That’s unlikely, says Tom Selby at AJ Bell.
“Chancellor Hammond has already said he doesn’t have a pot of money under his desk so it is unlikely we will see any major giveaways for savers in the Budget,” he says.
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Personal Allowance to rise again
The Personal Allowance will increase by £500 in the new tax year, meaning the first £11,500 earned is tax free.
The point at which the higher rate of tax kicks in will also rise, from £43,000 to £45,000.
Will your Council Tax rise?
Earlier this year, research by the House of Commons library found councils could need to hike Council Tax by up to £6 billion a year by 2020 in order to fund soaring social care costs.
As we explained here, it means that some households could see their bills rise by 4.99%, the most they can increase without councils having to hold a referendum of residents.
Such hefty hikes will not prove popular with voters, no matter how well-intentioned they are.
That means Chancellor Hammond has to find a delicate balance between boosting funding and placating cash-strapped households.
Small businesses could get help
Business Rate revaluations coming into effect in April mean that, while most firms will enjoy a slight decrease, some could be hit with a 400% hike overnight.
Rebecca Long-Bailey, the shadow Business Secretary, described the situation as a "ticking time bomb".
She added: "It cannot be right for smaller town centre retailers to be facing massive hikes while the Amazons and ASOSs of this world have their business rates cut."
The Government has pledged help in the form of a £3.6 billion fund, but critics say this falls short of what's needed. Will the chancellor set aside more cash?
Any respite for motorists?
In what could be a classic sleight of hand, the chancellor is widely expected to trumpet the freezing of Fuel Duty to help ease motorists running costs while at the same time confirming a 2% hike to Insurance Premium Tax (IPT), which will drive up insurance premiums.
In truth, the IPT hike is just the start of motorists problems: as we reported last month, a compensation ruling by the Ministry of Justice could see insurance premiums soar, with older drivers facing hikes of up to £300.
Will the chancellor backtrack on the IPT hike with this in mind? Time will tell.
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Stamp Duty could change at the top and bottom
Stamp Duty is charged on all properties above £125,000. With house prices rising, more and more first-time buyers are now being caught out by this tax.
At the other end of the market, experts (and estate agents) have expressed concerns that hefty levies – 10% on properties over £925,000 and 12% on those over £1.5 million – are stifling the high-end market and this inactivity will soon trickle down the property food chain.
The chancellor might decide to make changes to Stamp Duty to help those at the top and bottom, while everyone else looks on with envy.
The big picture: economy improving, but consumer debt is the catalyst
So that’s how your finances could change. But what about the wider economy? On that front there’s both good news and bad.
A thinktank has predicted a drop in Government borrowing as a result of solid economic growth and strong tax receipts since the Brexit vote.
The Resolution Foundation believes that borrowing forecasts will be cut by £29 billion between 2015-16 and 2020-21.
That would leave the deficit at £16 billion in 2020-21.
If correct, it would mark the first time since 2014 that a chancellor announces lower borrowing in their Budget speech.
However, the thinktank is calling on Hammond to address the economy's reliance on consumer spending.
Matt Whittaker, chief economist at the Resolution Foundation, said: “Alongside the significant challenge of the public finances, Philip Hammond should focus on the sober task of addressing some of the UK’s big structural problems.
"With last year’s growth driven entirely by consumption, the prospect of a significant slowdown in household income growth in the coming years raises serious questions over sustainability.
“For households across Britain, the living standards story of this parliament risks being one of anaemic growth and rising inequality.
“Government tax and benefit policy is currently set to compound the squeeze for low and middle income families.
"Changing those plans, so that instead of directly raising inequality the Government is reducing it, would be a step in the right direction.”
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