Sluggish UK growth and swelling global borrowing costs could have wiped out Chancellor’s near £10bn headroom.
Business owners should brace themselves for tax reviews and systemic reform plans ahead of the impending Spring Statement.
Chancellor Rachael Reeves will deliver her Spring Statement on Wednesday 26 March, and Peter Wilson, Managing Director of our wealth management service, Castlegate Financial Management, has said the current economic situation has given businesses cause for concern over the coming months and years:
“Given the sluggish UK growth rate, swelling global borrowing costs and international markets continuing to remain uncertain, there is a fear that the Chancellor’s £9.9 billion ‘headroom’ from the last Budget has been wiped out.
“With the Prime Minister now committing to a £2 billion rise in defence spending to support Ukraine, the public finances will come under greater pressure. Whilst they are looking at wide civil service and health reform, it may not be a surprise if further tax rises appear.”
Graeme Hills, Head of Tax at Duncan & Toplis, highlighted the need for more “transitional” approaches to inheritance tax, following the fallout around agricultural assets in October’s Budget and the lack of time to prepare for these changes, due in April 2026.
“Some of these measures are unduly burdensome and cause practical issues that cannot be resolved in the timeframes the government has set, particularly where longer term succession plans are not needing to be shortened. It effectively traps people in structures that are no longer fit for purpose.”
“However, the expectation is that no major tax hikes will be announced during this Spring Statement, which will probably be seen more as a spending review than a statement with specific policy and legislation. As such, I expect the Chancellor will be focusing on spending cuts rather than taxation, and instead presenting the Office For Budget Responsibility's forecast.”
“Above all else, business owners want and need clarity in these uncertain times so a clearer tax roadmap to outline plans for the full government term would be much appreciated if it is possible. While some tax changes are required to be reactionary, a greater forecast for what these changes might look like would help businesses immensely; the economy tends to work better when it is stable and predictable.”
The Spring Statement presents the Chancellor with an opportunity to review the decisions made in the October Budget, analyse their potential impact and perhaps add to them, alter them or even reverse them, if they proved to be particularly unpopular. However, the government has often been keen to stress that this is more of a spending review than a significant fiscal event, so we don’t expect any widespread tax reforms this time around.
Graeme Hills said the most likely course of action around taxes in this Spring Statement will focus around income tax threshold rates, and possibly freezing them beyond the currently agreed timeframe of 2028:
“ Often, governments look at boosting tax collection resources so they can raise revenues without raising taxes. This year, there is talk of further freezing of personal tax thresholds which, while not a direct increase in tax, effectively raises more through the fiscal drag effect of inflation, increasing income without the tax reliefs to match them.”
That isn’t to say there won’t be any key changes. One area being looked at is cash ISAs, and the potential introduction of a cap in cash ISA contributions to encourage investment into stocks and shares that will more likely drive economic growth.
Peter Wilson, Managing Director at Castlegate Financial Management, explains why this might be implemented:
“With UK Consumer Prices Index (CPI) inflation hitting 3% in the 12 months to January 2025, and the monthly interest rates available on cash ISA deposits, including unconditional bonuses, dropping to 1.77%, cash ISA savers face a real terms loss of 1.23%.
“January was the third month in a row where savers suffered a real terms loss on cash ISA savings since March 2024. However, back in July 2022 cash ISA savers were suffering a historic 9.4% loss on their money as inflation eroded their savings.
“We think this is more likely to be announced in March and actioned in the Autumn Budget, however, offering some time to prepare for what is to come.
“Numerous reports suggest that the Chancellor will be looking at the nation’s welfare bill as a way to shed billions of pounds from public spending, and Rachel Reeves has previously pledged significant reform of the wider welfare system.
“We also expect there to be a follow-on from the Prime Minister’s recent scrapping of NHS England, which was dubbed as a move away from additional layers of bureaucracy. Streamlining of the civil service and the axing of other quangos would come as little surprise alongside this recent news on NHS England.”
While inheritance tax and proposed changes to the system have been the talk of the nation since October’s Budget, Graeme Hills is calling for a greater focus on the wider structure of inheritance tax and its framework, saying it currently creates pressure for business owners and individuals alike.
He said: “The non-transferability of the £1 million Business Property Relief limit between spouses is also causing undue planning pressure by not mirroring structures elsewhere in the Inheritance Tax framework. This is something we feel must be addressed moving forward to avoid placing unnecessary stress on families.”
This call to action around inheritance tax rules was also echoed by Peter Wilson, who went a step further and called upon the government not to extend the current 7-year rule around this particular tax, which states that if you die within seven years of gifting an asset to an individual, it is exempt from inheritance tax contributions. He said:
“These decisions are creating a sense of anxiety post-Budget and making people feel a sense of fiscal uncertainty.”
“In the wake of recent Budget announcements, it could be argued that a cloud of uncertainty and anxiety loomed over everyone, but especially business owners and the self-employed. Inheritance Tax planning is an area that more people should talk about and plan for, and these previously announced reforms are now bringing those conversations to the fore, which can ultimately only be a good thing moving forward.
“Leading up to the Chancellor’s Autumn Budget speech, discussions were rife with speculation about potential changes to key financial reliefs, such as business asset disposal relief and adjustments to capital gains tax (CGT) which proved to come to light. In the announcement, the lower rate of CGT was raised from 10% to 18% and the higher rate was raised from 20% to 24%.
“We are encouraging clients to look at other wrappers, like trusts for certain money, or using protection to protect against the tax bill rather than trying to mitigate it, we're having broader conversations than we did perhaps six months ago.”
