Despite the gathering pace of the UK economic recovery, the Chancellor has warned that there is a “long way to go” and that 2014 will be “a year of hard truths”. With the 2015 general election looming, the Budget is likely to be more political than normal. The Chancellor has said that he will focus on initiatives to boost exports, business investment and house building but he may also look at:
- Income tax– The Chancellor has already confirmed several changes, including increases to the income tax personal allowance (£10,000 in April 2014 and £10,500 from April 2015) and a reduction in the income tax basic rate (20%) ceiling to £31,865) which will, in combination, remove about £400 of earnings from the upper rate of income tax (40%).
- NICs – the level of earnings at which individuals start to pay NICs (currently £7,755) will also go up slightly (to £7,956), removing about £200 of earnings from NICs. A new NICs allowance will also be available from April 2014, removing the first £2,000 of NICs cost for every business. NICs will cease to apply to most under-21 year olds from April 2015.
- Companies – corporation tax for larger companies is set to reduce to 21% in April 2014 and 20% in April 2015. The Government may bring forward the 20% rate to encourage businesses to base themselves in the UK. New tax breaks for companies which invest more are likely to be announced.
- Capital gains tax – the Government may provide further details of the proposal to tax (from April 2015) capital gains made by non-residents on the disposal of UK residential property.
- Property – following the rapid rise in the value of UK properties, a review of SDLT would be popular. The Chancellor may be influenced by Scotland which is set to introduce an SDLT regime in April 2015 that does away with the “cliff edge” increase in the SDLT rate when consideration hits specific value points. The Government has also signalled that the “help to buy” scheme will be extended to 2020. Other measures to encourage new home building are likely.
The Budget will contain other measures which will be of less political significance. These may include:
- Corporate debt restructuring – the Government will hopefully soften its proposal that the tax exemption for corporate “debt for equity” swaps will only apply in corporate rescue situations.
- Investors – further details should emerge regarding the recently announced tax relief for investors in social enterprises, including the rate of relief (probably 30 – 50%).
- Partnerships – the proposed changes to the taxation of partnerships are likely to be pushed through in the Finance Bill 2014, despite recent calls from the House of Lords to delay these measures.
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