Spring Budget predictions: what other options does the chancellor have?

With time running out for the chancellor ahead of the Budget, there are no doubt last-minute meetings going on in the Treasury to finalise the measures to include in the chancellor’s red box. Whilst the clever (and wishful) money may be on a cut in the basic rate of income tax or National Insurance contributions, perhaps alongside some changes to the high income child benefit charge, are there any other alternative vote-winning measures in his hat? 

Whilst a significant cut in inheritance tax (IHT) now seems off the cards, there remains the hope from some that the chancellor may have room to increase the threshold at which an estate becomes chargeable to IHT. 

The IHT nil rate band has remained at £325,000 since April 2009; inflationary increases alone since that date would give a current allowance of almost £500,000. The introduction in 2017 of the residence nil rate band (RNRB) was intended to mitigate IHT liabilities on otherwise low value estates caused by increasing property values. Since then, property values have increased by more than 30% leaving the £175,000 tax-free allowance looking hopelessly inadequate in meeting its original policy objective. 

The challenge is whether this is politically feasible given the small number of estates that actually suffer IHT. Such a move could be badged as helping to ensure IHT is focused on wealthier estates. Indeed, increases in the nil rate band could even be tapered down to nil depending on the total value of the estate if there was a desire to ensure the benefit of such a measure was tightly focused. With the property market potentially rebounding later this year if interest rates come down again, this could be justified as an issue worth addressing now.

On that theme, another area worth looking at may be Stamp Duty Land Tax (SDLT), where we could see SDLT relief and financial support extended for first-time buyers. This would be welcome news for many, and would be seen as stimulating the property market and helping individuals in England and Northern Ireland onto the property ladder. 

But what of individuals in Scotland and Wales? Land Transaction Tax (LTT) in Wales, and Land and Buildings Transaction Tax (LBTT) in Scotland, are devolved taxes and rates are generally higher than the SDLT rates. The comparison is particularly stark between SDLT and LBTT rates and bands. Ignoring the (differing) surcharges that may apply to the respective taxes, the purchase of a property costing £500,000 in Scotland already costs £10,850 more in property tax than a similar property in England for example. Further SDLT reductions, or extensions of reliefs south of the border may have an undesired knock-on effect on the property market in the Scottish Borders, and leave the Scottish taxpayer feeling even more disgruntled. 

The chancellor will no doubt feel he has to have some wildcard measures to announce in the Budget but he will also be mindful of not unwinding the progress made so far on curbing inflation. An arguable benefit of cuts to IHT and SDLT is that they should not materially drive inflation up as some other tax cuts might. Some creative structuring of such tax cuts and who can benefit from them might also help to keep the costs down. Ultimately, the one thing the chancellor can’t afford is for this Budget to be boring.