The UK’s most expensive tax reliefs under the spotlight

Given the associated costs of these tax reliefs, could any of them be scrutinised by the Treasury to limit their future costs? As a starting point, it would be difficult for any changes to be made to the VAT reliefs on food and on the sale of residential properties. Surveys suggest that the cost of living is a concern for the majority of people in the UK and if reform is to be made to the taxation of food then any measures would need to be taken with care or they could hit the poorest in society hardest. Given the government’s challenging targets for house building, changes to the VAT rules on new homes would seem counterintuitive.

That leaves three of the more expensive tax reliefs to consider but all could attract significant criticism.

During the election campaign, the prime minister explicitly ruled out changes to the tax relief on the sale of someone’s main home, known as principal private residence relief. Whilst expensive, changes to this relief could have a major impact on the property market and limit supply further. Homeowners could be disincentivised to move as realising a CGT bill may result in them being unable to afford a comparable home.

If there were to be any changes to this relief, a possible route would be to limit tax relief to the extent that proceeds are reinvested into another property which is the approach taken in a small number of countries. Some might reasonably argue that there ought to be fewer barriers to encourage homeowners to downsize rather than erecting new ones.

The final option therefore lies with relief for pension contributions in respect of income tax and National Insurance contributions. The obvious criticism is that it will likely result in smaller pension pots and store up problems for future governments. Nevertheless, it has been rumoured that chancellors have flirted with the idea of curtailing these reliefs in the past and if there is to be a restriction to a major tax relief in 2025, this would appear to offer the path of least resistance.