For many years, Treasury officials and financial journalists have engaged in a relatively harmless, pre-Budget, period of cat-and-mouse, the former feeding deliberately cryptic clues to the latter, who are then tasked with solving the Treasury’s ambiguity in a reasonably coherent, logical manner.
There has not been a wealth of coherence or logic on display this autumn, with headlines and the articles that accompany them suggesting we’ve entered another phase of Britain’s class war: for every mention of an impending ‘wealth tax’, designed to worry more affluent citizens, we’ve had corresponding, earnestly delivered, exhortations to ‘tax the rich’.
Ultimately, however, the Treasury has leaked so many ambiguous stories this year in an attempt to throw journalists off the Budget scent that hard facts have been overlooked. Meanwhile, the Chancellor and her acolytes appear to have floated Budget-related ideas in search of a response and if the reaction has proved unfavourable, they’ve moved on to something else. Unfortunately, this strategy does little more than generate headlines referring to the Chancellor’s vacillation, ie she’s performed another U-turn. This meant that on the eve of the Budget, she appeared to have performed enough turns to have her own slot booked at the Wheeltappers and Shunters Social Club.
As ever, by the time Ms Reeves came to the Dispatch Box to deliver her Budget on Wednesday, some of the more extreme suggestions urged by her backbench colleagues had been dropped. This is not to say that this could be described as an anodyne Budget: once the Chancellor’s proposals are enshrined in law, the tax burden will rise to its highest level in modern history. Coming after last year’s staggering £40 billion in tax hikes, almost every working or retired adult will feel the pain.
It’s worth noting that older people have not been left off the hook. Pre-Budget, the political clamour among some MPs on Ms Reeves’ side of the House to implement policies that would increase the tax burden on the nation’s retired cohort grew progressively louder.
Many folks believed that the Budget would strip them of the ability to withdraw 25% of their private pension pot, tax-free. Fortunately, this didn’t happen, but it appears there’s growing support for such a measure: who is to say this won’t happen in the next Budget?
Nor did we see the imposition of National Insurance on rent generated by landlords, a group expected to take a tax hammering, while plans for a co-called ‘exit tax’ was quietly dropped. No-one should believe that either of these policies has been completely jettisoned.
One unexpected measure announced by the Chancellor was the introduction of new tax rates, of 22%, 42% and 47% on income generated from property, savings and dividends.
For instance, the rent generated on an investment property by an owner who is a basic rate tax payer will rise by 10%.
If we assume our investment property owner owns a single property, has no mortgage and generates a monthly rental income of £650 (£7,800 per annum), the amount of tax due on this sum will increase from £1,560 to £1716, a rise of £156. Higher rate taxpayers will become liable for larger sums.
More than eighteen months ago, Ms Reeves famously made a manifesto pledge, saying she would not raise income tax or VAT on ‘working people’. However, by freezing income tax thresholds until 2030-31, as she did on Wednesday, she has ensured that an estimated one quarter of workers, around 10 million people, will be dragged into the 40% and 45% income tax rate over the next six years.
Following the Budget, however, the Chancellor maintained that by freezing tax thresholds, she had not broken her manifesto pledge because her promise related to income tax, not income tax thresholds.
What appeared to be the biggest blow for older voters was the announcement that the cash ISA allowance will be reduced from £20,000 to £12,000 unless savers are 65 and over, in which case, their maximum allowance will remain unchanged. This was a rare piece of good news, although for owners of highly valued homes, a ‘council tax surcharge’ awaits from April 2028.
Earlier this year, I reported upon a survey conducted by the Nationwide building society which found that around one third of retirees expect to survive on a state pension. One wonders how they will fare as the tax burden continues to rise; indeed, for many, the prevailing winds enhance the appeal of equity release.
Equity release enables UK homeowners aged 55 and over to release a proportion of their home’s value as a tax-free lump sum.
For people who have cleared their mortgage, releasing equity could provide a cash cushion – tax-free cash they can spend how they wish. For those who still have a mortgage, getting rid of it with the released lump sum could offer some much-needed relief to their finances.
Whichever option homeowners choose the subsequent boost to their disposable incomes could allow them to satisfy long-harboured ambitions, or simply supplement their monthly incomes.
Releasing equity is a big decision and no-one should embark on the process without taking qualified equity release advice. Releasing equity can affect the value of your estate and have an impact upon your entitlement to means-tested state benefits, so consulting with an adviser who can explain these implications in greater detail makes enormous, good sense.
Few Chancellors are remembered for their Budgets; since the Second World War, Jim Callaghan and Denis Healy are among the few to have made a lasting impression: Callaghan raised income tax from 38.7% to 41.2%, while Healy pushed the top rate up from 75% to 83%.
Notice a pattern here? There’s little on the current fiscal horizon to suggest that we’ve seen the last of tax rises. Under these circumstances, and coupled with the likelihood that older voters will get clobbered for tax at some point in future because they’re an ‘easy hit’ for politicians in search of income, exploring whether equity release schemes could be of benefit could make enormous sense.
