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Budget 2020: tax and National Insurance changes, Fuel Duty hike and more rumours

From Pension Tax Relief to National Insurance, we look at how your finances might change following this afternoon's Budget.

It’s fair to say that preparations for today's Budget have been a little more volatile than in previous years.

Less than a month ago, Sajid Javid resigned as Chancellor of the Exchequer and was quickly replaced by Rishi Sunak.

Fast forward to today and, just hours before the new chancellor is set to deliver his first speech, the Bank of England has caught everyone off guard by announcing a huge Base Rate cut in a bid to boost confidence in the economy.

That has set the tone for a Budget that is sure to contain more than a few big announcements. 

While the headlines will likely centre around efforts to tackle the Coronavirus and bolstering the economy, there will also be many changes that could directly affect your day-to-day finances.

Below we'll take a look at some of the rumours and whispers we've heard in the build-up to today's big speech. 

There's no guarantee that any of these will be implemented, but if past Budgets are anything to go by, it's likely a fair few will feature in some form.

Create your own Budget boost: 22 ways to up your income

Pension Tax Relief

There was talk that Javid was considering revamping the Pension Tax Relief system while he held the Chancellor post.

Currently, the tax relief on offer on your pension contributions varies depending on your Income Tax band, meaning that the best paid get a bigger boost from the Government when they pay into their pension than those on more modest salaries.

Critics have long argued this is unfair and called for a flat rate of pension tax relief, which is what Javid was reportedly set to propose before he left the post.

However, talk of this tax change has died down somewhat following anger from Conservative backbenchers over the idea, with former Brexit secretary David Davis cautioning that such a move would be a ‘moral disgrace’.

5 questions to ask before accessing your pension

Fuel Duty

The tax we pay at the pump has been frozen year after year by successive Governments, though there is talk that this could come to an end next week.

While Boris Johnson and his team emphasised they had no plans to end the freeze during the election campaign, the planned spending on infrastructure does need to be paid for somehow, with newspaper reports suggesting that a 2p increase on Fuel Duty is under consideration.

However, it may be delayed until next year.

It’s another tax rumour that has upset plenty of Tory backbenchers.

Slash your fuel bill with these top motoring tips

Entrepreneurs Relief

One tax break which may not be around for much longer is Entrepreneurs Relief. It has been strongly rumoured that Sunak will scrap the relief, which it is believed would boost Treasury coffers to the tune of around £3 billion a year.

The relief allows people to only have to pay 10% Capital Gains Tax when they sell off their own business, compared to the usual 20% paid by higher rate taxpayers.

The idea of the tax relief was to encourage people to create their own businesses, but it’s not been a great success, with Paul Johnson, director of the Institute of Fiscal Studies describing it as “misleadingly named” and poorly targeted.

It noted that in 2017-18, around three-quarters of the £2.3 billion cost of the relief helped just 5,000 individuals, each saving an average of £350,000.

How to raise funding for your own business

National Insurance

One of the key pledges in the Conservative election manifesto was to increase the National Insurance threshold.

Currently, workers start paying National Insurance once they earn more than £8,628 a year, which works out at around £166 a week.

However, the manifesto promised to increase that to £9,500 this year, with the eventual ambition of raising it to £12,500.

Alongside this, the manifesto promised no increases to Income Tax or VAT.

Taxman to review approach to 'missing years' of contributions

Inheritance Tax

It’s no secret that the current Inheritance Tax setup is extremely complicated, with all sorts of reliefs and exceptions which people can attempt to make use of in order to pass on as much of their estate to their loved ones as possible.

But there has been significant lobbying of the Government to adopt a more sensible and straightforward approach, from the likes of the Office for Tax Simplification and the All Party Parliamentary Group for Inheritance and Inter-generational Fairness.

The latter for example suggested replacing the current system with a tax on lifetime and death transfers of wealth at a low rate, of between 10% and 20%, but with very few of the current reliefs.

How to minimise your Inheritance Tax bill

Housing

One of the more eye-catching inclusions in the Conservative manifesto was the promise of developing a new market for long-term fixed-rate mortgages, running for around 25 years, which would be funded by institutional investors like pension funds.

It’s an idea that has been mooted for decades without ever actually going anywhere, so it will be interesting to see if Sunak can make good on that commitment and provide some more details for how the Government plans to cultivate this market.

Another election pledge centred on offering discounts on housing to local people purchasing their first home.

The Government has now launched a consultation on the idea, but we may get a better idea of just how Sunak and team think this may work in the Budget.

We've long been critical of plans that simply boost demand rather than housing supply, but barring any big surprises, it seems likely we're going to get more of the same when the Chancellor steps up to talk next Wednesday. 

Could you save £1,000s by switching to a new mortgage? Compare rates with loveMONEY

What would you most like to see in the Budget? Who do you think will be the biggest winners and losers? Share your thoughts in the comments section below.

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  • 05 March 2020

    Scooty I don’t understand, people over 60 get free prescriptions and those with a chronic problem can ask their GP for a FP92A form so they can get a free prescription. Also those on benefits can get free prescriptions too and free dental checks. Over 60s also get free eye checks, plus those with glaucoma etc and also those on benefits. Personally I think it would be chaotic asking people to move from social housing if they earn too much. If I were in that position I would do nothing to my home as I would not know how long I was going to live there. Why not just get the council to charge a standard rent with nonsubsudy and buy more houses to rent.

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  • 05 March 2020

    @mahesh2911 The problem is the usual one: developers make far more profit building £400k 1-bed flats in London (& selling them to wealthy - often foreign, speculative - buyers) , than the (small) grant they get from Councils to build social housing... It always comes down to money! :(

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  • 04 March 2020

    I'd like to see free prescriptions for those with chronic, long term conditions. Also stop those who have paid into the system having to pay for dental treatment and glasses, whereas those who have never paid in get everything for free. I'm not a pensioner but it's heartbreaking seeing some pensioners having to pay for things they've paid into the system for their whole lives. The government needs to reward people who pay in instead of those who only take out. Social housing is imperative too, so is like to see lots more being built. I do, however, think that once people earn over a certain threshold /percentage of household income, they should need to move out of social housing to either rent privately or buy their own property. Social housing should be for those in need and not for life. I'd like to see more work on flood defences and helping those affected. Closure of tax loopholes so that tax is paid when it's due. Especially with big companies and those who can afford it. Incentives for savers as the market has been so flat that some simply spend.

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