What the Chancellor might target next week ...

SOME pointers have been given to what the new Chancellor, Jeremy Hunt, might be planning in his much-awaited – and delayed – Autumn Statement, following the political fallout that gave us three Prime Ministers in seven weeks.

NFU Mutual’s specialist team has set out some possible targets and outcomes on the statement which is due out on November 17:

* Reducing the pension annual allowance is one area. “Pension tax relief costs the government £48.2bn each year and more than half of that goes to higher and additional rate taxpayers but changing the rates would be complex,” said Sean McCann, chartered financial planner at NFU Mutual.

“Instead, the government could reduce the annual allowance. You can currently put £40,000 into a pension each tax year, but slashing that to £30,000, or even £20,000, to align with the annual ISA allowance would save huge sums. However, the population is not saving enough for retirement so Jeremy Hunt will need to tread carefully.”

* On an increase in Capital Gains Tax (CGT) rates, Mr McCann added that if the Chancellor wanted to target those with the broadest shoulders, he could look at this area.

CGT is currently charged at 10% and 20% – plus an additional 8% if the gain is from residential property – but the Office of Tax Simplification has previously recommended aligning the rates with Income Tax.

“Aligning CGT with Income Tax may be viewed as dis-incentivising enterprise, so increasing the rates to 20% and 30% and retaining the 8% surcharge on residential property would be a compromise that would still raise increased revenue for the Treasury,” he said. “Most CGT comes from a small number of taxpayers who make the largest gains and this move would help raise further money from that group.

“The Chancellor could also reduce the CGT annual exemption of £12,300 in a move that would see an increasing number caught by the tax. Latest figures suggest CGT is paid by 323,000 people but the OTS estimated reducing that annual exemption to £5000 would double that number and reducing it to £1000 would nearly triple it.”

* There’s an overdue simplification of death duties and Inheritance Tax is ‘unnecessarily complicated and ripe for reform’, said Mr McCann. He added: “Getting rid of the myriad of gifting allowances in favour of one annual gifting allowance of £15,000 would help simplify the tax for the increasing number of families who fear being caught by inheritance tax.

“The government could also remove the rules that wipe CGT on death if you claim Business Property Relief, meaning those families who sell businesses they inherit would pay CGT on the sale.”

* Targeting preferential tax treatment of holiday lets is another area that might be looked at. Mr McCann said the Covid pandemic had created a boom in domestic holidays, and Mr Hunt could target furnished holiday lets after recommendations from a recent report from the Office of Tax Simplification.

“Furnished holiday lets can benefit from significant tax advantages not enjoyed by those who own buy to let properties,” he added. “These include more favourable tax relief on costs including mortgage interest and the availability of capital gains tax reliefs if they sell or give away a property.”