MPAA limit:
“The Government could take the same approach with the Money Purchase Annual Allowance (MPAA). At the moment, anyone who accesses taxable income from their pension is hit with the MPAA, lowering their annual allowance from £40,000 to just £4,000. In tough times it is likely more people will turn to their retirement pot to cover a shortfall and in these circumstances it feels unfair to handicap their ability to rebuild their retirement savings once the cost of living crisis has lifted. Scrapping the MPAA would make it easier for millions of people to use their savings to keep afloat during the crisis.”
More green Gilts:
“The Government has already raised £16bn through its Green Gilt issuance, and considering the latest one was 12 times oversubscribed, there’s clearly still appetite to buy more of these green Government bonds. The money raised is used for projects like zero-emissions buses, offshore wind and schemes to decarbonise homes and buildings. The recent energy crisis has focused attention on the need for renewable infrastructure investment, so it makes sense that the Government would raise more cash for this cause.”
VAT changes:
“The VAT rate for hospitality businesses was slashed to 5% during Covid, it has since risen to 12.5% and will rise again to 20% from April. This last increase could be delayed, to keep those businesses at the 12.5% rate and help them while they struggle with rising bills, meaning either higher prices for customers or lower profits. More broadly, the Lib Dems are also calling for the VAT rate to be cut from 20% to 17.5% for a year, which they say will save families £600 a year on average.”
Where will the money come from?
If the Chancellor is going to hand out any giveaways he’s going to have to try to balance the books. So what areas might he target to raise some more cash?
Capital Gains Tax:
“Increasing ‘wealth taxes’ could be a popular move. Capital gains tax generated £10.6bn last year, and this is rising as property and investment prices climb. There has previously been speculation that the current capital gains tax rates of 10% and 20% (or 18% and 28% for property) will be scrapped and instead everyone will pay income tax rates on their gains. This move was mooted by the Office for Tax Simplification in a previous review. The stipulation from the OTS was that investors should get some sort of inflationary relief, so they are only taxed on above-inflation gains. Clearly any relief would reduce the tax-take for the Government, so that may be quietly ignored in any final rules.
“In a less radical move, the Government could cut the tax-free allowance from its current £12,300. The allowance has already been frozen until 2026, but Rishi Sunak could go one step further and cut the allowance. Chopping it in half, to £6,000, would generate £480m, while cutting it to £2,500 would give an £835m boost to Government coffers, according to OTS predictions.”
Dividend allowance:
“Massive reform has already happened to dividend tax rates, with them set to increase in April anyway. But that doesn’t mean more tweaks are off the table. In a further squeeze on investors and some self-employed, the Government could cut the current £2,000 dividend tax-free allowance and drag more people into the new tax rates.
“At the current allowance the Government says 60% of people with dividend income outside an ISA or pension are within the current tax-free limit, which has to look like a fairly juicy percentage to reduce. The Government has form on this, having already cut the rate from £5,000 to £2,000 in 2019, so a cut to £1,000 or even £500 wouldn’t be impossible.”
