‘Don’t panic’ about the budget… or maybe do
Andrew Paterson has had enough of pre-budget uncertainty these days
If you’re budget-weary, I’ve got bad news for you – there’s another one galloping over the horizon soon. This time, it’s our own Scottish version, to be delivered on 13 January, with the familiar fanfare.
How many of you must yearn for budgets of old when, whatever the Chancellor announced on the day was a surprise to everyone. Modern versions are a pantomime lasting several weeks, with many new policies trailed and tested in the court of public opinion. Rachel Reeves’s recent effort took this to a whole new level. Should we expect more of the same leaks and trailers ahead of Shona Robison’s tax and spending plans announcement?
Those of a certain age (including myself) will fondly remember Corporal Jones’ plea “Don’t panic” in Dad’s Army, but that’s easier said than done as tax and financial planning decisions, that used to be mulled over time, with reassuring depth of thinking, can sometimes now be rushed to combat political rumours. The fear engendered can result in rushed decisions to lock in current tax rules before they may, or may not, disappear.
Look at the unfounded scare ahead of November’s UK budget around Inheritance Tax (IHT) and possible changes to rules around Potentially Exempt Transfers (PETS). Hints about changes make it very difficult for clients to manage their affairs and can lead to worries and indecision about what to do. It’s not just the markets that like certainty, but ordinary taxpayers too.
IHT is not just a tax on the rich, with increasing numbers of estates caught in government crosshairs as the nil rate band, the threshold above which IHT is due, has been frozen since 2009 and will now remain so until at least 2031. That might seem like a minor amendment, but coupled with other factors such as property prices increases and, most notably, forthcoming changes to the taxation of pension death benefits, it will mean greater numbers of estates facing IHT liabilities.
One key date is 6 April 2027. From then, unused pension funds come into the IHT equation in a move that many feel is grotesquely unfair. Before then, the farming community will already have faced what they consider a crushing blow from April 2026 with the introduction of a £1 million cap on 100 per cent IHT relief for agricultural and business property.
Now eyes are fixed on what might happen in the Scottish budget and properties could form one of the headlines. How will our Cabinet Secretary follow Rachel Reeves’s plan to add 2 per cent to income tax rates for property income? Industry commentators, already wary of the higher rates of Additional Dwelling Supplement charged on second homes in Scotland, are concerned about the impact on a housing sector already in crisis.
The introduction of a “mansion tax”, charged on properties in England valued over £2m, was a UK budget eye-catcher. We may have fewer homes in Scotland in that price bracket, but with the OBR estimating returns of £400m per annum to the Treasury, the Scottish Government might view this as a useful way to fill the coffers.
With so many changes looming, rumoured or real, professional advice is crucial. Legendary football manager Ron Atkinson used to talk about “moments of cool panic” – perhaps that should be our pre-budget mantra.
Andrew Paterson is a Partner, Murray Beith Murray