New prime minister, new tax policies
July ended with a new prime minister in Boris Johnson and a new chancellor in Sajid Javid, both with different ideas from their immediate predecessors.
There is already speculation about what Mr Javid might produce in his first Budget and more importantly, what some much publicised tax proposals could cost.
At the start of his campaign, Boris Johnson’s main tax proposal emerged as raising the higher rate threshold to £80,000 from its current £50,000 level and applying the same increase to the ceiling for full rate National Insurance Contributions (NICs). The combination was potentially unwelcome news for high earners north of the border, as Scotland currently sets their own higher rate threshold (£43,430 in 2019/20), but not the NICs limit.
In the rest of the UK, the proposed reform would boost income for about 3.6 million people, according to calculations made by the Institute for Fiscal Studies (IFS). The biggest winners would be pensioners with income of over £80,000, who would save up to £6,000 of income tax, but not suffer the extra NICs of up to £3,000.
The IFS calculated that three quarters of the fall in tax liabilities would go to those in the top tenth of the income distribution. It also assessed the cost of the changes at a net £9 billion, the financing of which Mr Johnson did not address.
Later in his campaign, the prime minister appeared to backtrack on his tax proposals which became ‘an ambition’ and up for ‘debate’. He then switched to focus on reform of stamp duty land tax, including cuts to the higher rates and considering the switch of the tax liability from the property purchaser to the seller. A range of other spending priorities has emerged since Mr Johnson took office, not least of which is increased spending against a no deal Brexit.
We may have a clearer idea of Mr Johnson’s actual tax and spending plans in September – there are already suggestions of an emergency pre-Brexit Budget as ‘insurance’ against the consequences of a no-deal exit. In the meantime, the situation is as it was under Mrs May and Mr Hammond: if you wish to save tax, rely first on having the right personal planning in place.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.