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8 things we'd like to see in the Budget

The next UK Budget is on 3 March. From clarity on furlough, to more action on scams, here are eight things we’d like to see.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

No news can be good news when it comes to Budgets – especially when the chancellor is under pressure to close the gap between tax and spending.

There’s been a lot of talk around possible changes to everything from capital gains tax to inheritance tax and a one-off wealth tax to boost the Treasury’s coffers.

Instead of tinkering at the edges, we’d like to see a full tax review to make sure the system is simple, fair, and incentivises people to invest for the long term.

The government has made it clear it doesn’t think this is the time for a full overhaul of taxation, so what about the short-term?

We think this might not be the time for the Treasury to start clawing back cash used to help people through the pandemic. There’s still a desperate need for help, and ramping up taxes isn’t necessarily the solution.

While interest rates are so low, the government can think about carrying debts for longer and prioritise supporting people through the financial nightmares caused by the crisis.

But there are some key things that we think are crying out for change. The penalty for withdrawing from your Lifetime ISA early for emergencies was cut to 20% during the first wave of the pandemic, but is due to go back to 25% in April.

This doesn’t just take away the benefit of the government bonus but takes a chunk of your savings too. We would like to see the penalty cut permanently, to give people confidence to put money away for the future in such uncertain times.

This article isn’t personal advice. If you are unsure of the course of action for you please seek advice. Tax rules can change, and benefits depend on individual circumstances.

Although we don’t know what Rishi Sunak’s Budget announcement will look like on 3 March, here’s what else we’d like to see.

1. Clarity and realistic expectations for furlough and the self-employment grant

The current schemes expire at the end of April, so we expect to hear what the government has planned next. The pattern from last year was to gradually withdraw government assistance, and in the case of furlough to ask employers to step in to fill the gap.

We expect the same approach, but this time we think it would be good to see realism underpin any changes. There needs to be caution on how quickly life can return to normal and sparking more record redundancies.

2. Help for people who’ve been excluded from previous schemes

The passing of another self-assessment tax deadline has raised the opportunity to offer the fourth grant to self-employed people who’ve now filed their first tax return. Speculation has been mounting that this could be on the cards, given the chancellor refused to bow to pressure to move the self-assessment deadline. The opportunity to help a group that has struggled so much shouldn’t be overlooked.

3. Help for those affected by the removal of the coronavirus boost to Universal Credit

This is worth £20 a week, and is currently set to be withdrawn in April. This was introduced when the number of people claiming Universal Credit for the first time soared during the pandemic. It was designed to soften the blow of a huge loss in income. Statistics show there were 5.7 million people receiving Universal Credit up until October 2020, which is up 2.7 million since the onset of the pandemic. We don’t see a reason why their financial circumstances would suddenly be strong enough now to take the loss of another £20 a week.

4. Address the cliff edge of the stamp duty holiday on 31 March

Lockdown has slowed the process of buying and selling to a snail’s pace. If the stamp duty holiday comes to a dead stop in March, purchases that are part way through the process will become subject to tax.

Buyers trying to take advantage of the government incentive shouldn’t be penalised as a result of problems elsewhere in the process. MPs have called for some protection for sales in progress. That could be a sensible way to remove this risk without extending the tax holiday.

5. Changes to the Money Purchase Annual Allowance

The MPAA is designed to stop people recycling cash from a pension in order to keep generating tax-free lump sums. However, it can catch people who are simply trying to do the right thing. At the moment, that includes those who need to access funds now due to hardship brought on by the pandemic and want to make it up later.

We’d like to see this change, so the allowance only applies where it can be proven someone is trying to gain a tax advantage.

6. No additional wealth taxes as a one-off post-pandemic funding boost

We already have taxes on wealth from capital gains tax (CGT), inheritance tax, stamp duty and council tax, and there have been discussions about more wealth taxes. The risk of introducing a new wealth tax as a knee jerk reaction to the pandemic is it risks putting people off saving and investing for the future – at a time when we’ve seen how essential it is to have robust finances in place for whatever the future holds. We think any changes need to be part of a sensible overhaul.

7. Resist pressure to hike CGT

The Office of Tax Simplification made a number of suggestions for changes to CGT. We think this particular tax is flawed – it can be hard to understand and difficult to plan for, it doesn’t work effectively with inheritance tax rules, and it doesn’t always lead to the best investment behaviours. If the Treasury follows the recommendation to raise CGT to match income tax, it risks disincentivising savings and investments.

8. Action on scams

Scammers are ramping up their attacks. In the 12 months leading up to the pandemic, one in five people were approached out of the blue by people they thought were investment and pension scammers.1 million responded, and 100,000 people paid out money.

Coronavirus has provided even more opportunities for criminals, and during the crisis, with local councils reporting a 40% increase in people reporting scams since the start of lockdown. Tracking down the scammers remains an enormous challenge and needs to be supported by efforts to make it harder for scammers to reach us.

See how to protect yourself from scams

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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