Tax planning ‘never been so important’ as Zahawi holding emergency Budget ‘quite possible’
Nadhim Zahawi arrives at Treasury in new role as Chancellor
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Mr Zahawi has taken on the Cabinet role overseeing the UK’s public finances after Rishi Sunak handed in his resignation to Prime Minister Boris Johnson. The minister told Sky News that “nothing is off the table” when it comes to taxation and ensuring the UK is “as competitive as we can be”.
Julia Rosenbloom, tax partner at wealth management firm Evelyn Partners, spoke about some of the measures that he may consider.
She said: “It’s only Nadhim Zahawi’s first full day in the job as Chancellor but he’s already commented that ‘nothing is off the table’ when it comes to possible changes to the tax regime.
“To help him stamp his mark as Chancellor, it’s quite possible that Zahawi may want to hold an emergency or early Budget where a different direction in tax policy could be announced.
“The Government has been under pressure for some time to help families with the cost of living crisis so this is something Zahawi is likely to address in the next Budget, whenever that is held.”
The tax expert urged Britons to revisit their tax planning in light of the appointment.
She said: “However, we don’t know what, if any changes, the new Chancellor will make to taxes in general, such as IHT, so the need for families to take a close look at their tax planning and take professional advice has never been more important.”
Experts at financial services group AJ Bell spoke about five steps that the new Chancellor could take to tackle the cost of living crisis.
The first was to tackle energy costs, as the average energy bill is predicted to reach almost £2,900 later this year.
Laura Suter, head of personal finance at AJ Bell, said: “One suggestion from the opposition has been to slash the VAT due on energy bills to lower them.
“The current Government has been accused of nabbing Labour’s ideas and repackaging them with a new name, such as the windfall tax, so it could do the same here.
“As energy prices have risen, so too has the tax take for the Government.
“VAT is charged at five percent on energy bills, meaning that on an average energy bill of £2,900, cutting VAT to zero would equate to around £140 a year saving for households.
“However, the criticism of this plan is that it doesn’t target the help at those who need it the most, and provides a tax break for all, including the wealthiest who can easily afford energy price increases.”
The Government has committed to a £400 energy rebate for all Britons and to a £650 one-off payment for people on low incomes.
Another suggestion for Mr Zahawi is to cut income tax to 19 percent and unfreeze income tax bands.
The previous Chancellor announced plans to do this, but not until 2024, so this could be brought forward.
Ms Suter said: “The plans to cut basic-rate tax from 20 percent to 19 percent will only save someone on £25,000 a year £143, while someone on £50,000 a year will save £377 in tax – the maximum saving.
“While that will give people some breathing space, taxpayers will still be paying far more in tax than if the Conservatives had left the income tax rates the same but not frozen tax bands.”
She also put forward the option to scrap plans to increase Corporation Tax from 19 percent to 25 percent and cutting VAT for businesses.
Ms Suter said: “Any cut to VAT would likely benefit businesses more than consumers. “However, if it stopped prices rising by so much it would protect consumers from some cost increases.
“In 2021/22, the cut to 5 percent for half of the tax year and 12.5 percent for the other half cost the treasury £4.7 billion.
“Someone going out for a meal costing £60 now would see their costs reduce by £7.50 if VAT was cut to 5 percent if all that saving was passed on to customers.
“Likewise, a hotel booking costing £200 would be subject to £25 less VAT if the rate was cut.”
Her final suggestion was to cut the Lifetime ISA exit charge.
The exit fee was reduced to 20 percent during the Covid pandemic, as many people needed the money after their income had drastically reduced.
More Britons may need to get at money from their savings with the soaring cost of living
Ms Suter said: “The new Chancellor could reduce the exit fee to 20 percent, so it only recovers the Government bonus.
“It will give people a bit of breathing room to dip into their savings and not face the punitive exit fee for doing so.
“Someone who withdrew £2,000 from their Lifetime ISA would save £100 if the exit penalty was cut from 25 percent to 20 percent, representing a much-needed boost to help pay the bills.”
Source: Read Full Article