Chancellor Jeremy Hunt’s politically charged Spring Budget yielded few surprises, but a few glaring omissions managed to turn a few heads.
No word on inheritance tax
Britain’s ‘most hated tax’ was not mentioned in the Spring Budget, meaning inheritance tax is here to stay in all its glory.
The standard rate of IHT is 40% over the £325,000 nil band, payable on property, money, and possessions when passed down from someone who has died.
A minority of people pay the tax, and though exemptions and transfers to spouses can bring the nil band up to £1 million, it is widely maligned.
If you ask The Telegraph, there is a moral imperative to scrap the tax, but for now, it initially looked like it is here to stay.
But, after trawling through the background documents, IHT changes could still be on the table, says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown:
“The documents say that from 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a ‘grant on credit’ from HMRC," she said.
“This could help deal with the issue where families can't distribute the estate until they've paid IHT, and they can't pay IHT until they've got access to the estate. We look forward to more detail, but it has the potential to be a change that can do much to ease financial stress at the most difficult of times.”
Hunt hushed on income taxes
There was no word on reducing income tax bands (though National Insurance contributions were reduced as a sweetener), meaning income above the personal allowance up to £50,270 remains taxed at 20% and income over £50,270 and up to £150,000 remains taxed at 40%.
Additional income over £150,000 remains taxed at 45%.
This leaves the door open to the worsening effects of fiscal drag.
Fiscal drag refers to the effect of inflation and earnings growth on taxpayers when they enter new tax brackets that are not adjusted for these factors.
Tom Minnikin, partner at Manchester-based tax firm Forbes Dawson, said: “The decision to continue with the freeze on various rate bands and allowances exposes the Chancellor to accusations of giving with one hand and taking with the other.
“Whilst all the focus of today’s Budget will be on the National Insurance cut there was no increase in various income tax thresholds, including the personal allowance and basic rate limit.
“This means that for earners who are on the margins of these thresholds any savings from today’s announcements may be counteracted by the effect of ‘fiscal drag’ as the freezing of the bands lead them unconsciously into higher tax brackets.
“Even with today’s changes, the overall tax burden remains at very high levels.”
No tourist tax cut
Hunt ignored calls from the British Retail Consortium to get rid of the controversial ‘tourist tax’ introduced in 2020 for visitors outside of the European Union.
Before the introduction of the levy, tourists could claim back VAT on certain goods and services purchased in the UK, making them 20% cheaper.
The Treasury previously warned that scrapping the levy would cost up to £2 billion a year, but British businesses believe the levy also scares would-be tourists away.
Helen Dickinson, chief executive of the British Retail Consortium, said: “The UK remains the only European economy without a tax-free shopping scheme, meaning we are missing a golden opportunity to boost tourism and spending across the country.
“Independent research from CEBR shows that the UK economy is losing £11 billion a year because of the loss of tourism resulting from, what is effectively, a tourist tax.
“Tax-free shopping not only convinces tourists to buy more, but it also attracts shopping tourism, supporting businesses and jobs in the UK.”