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Summer budget predictions on pensions and tax

The Chancellor will be looking to raise tax and is likely to some major reforms in train.

The summer budget on 8 July is the first real opportunity for the Chancellor to put his mark on the nation's finances, unconstrained by coalition negotiations. Here’s what he could do in three areas that may affect your investment plans and income.

Pensions

If you haven't used your pension allowances, then you still have a few days to do so before the Budget on 8 July. We recently reported that wealthy people should seriously consider maximising their pension contributions with a one-off contribution, while tax reliefs are still generous.

Restricting pensions tax relief for additional rate taxpayers is part of the Conservatives' manifesto - the move would fund an increase in the inheritance tax threshold for main homes to £1 million. There's a chance the Chancellor could go further by introduction a flat rate of pension tax relief that will be lower than the current 40 per cent available to higher-rate taxpayers.

 

Capital gains tax

Alex Henderson, tax partner at PwC says: "Don't assume the tax lock commitment means no changes to income tax, national insurance or VAT. There’s scope to raise more revenue without increasing tax rates by widening the definitions of what’s taxed, or withdrawing tax reliefs. Options include redefining short term capital gains as incomes as some other countries do, or restricting the deductibility of interest.

"On capital gains tax, we could also see a reduction in the level of capital gains you can make each year before tax: the annual exempt amount which currently stands at £11,100 could be frozen or even cut."

 

Council tax

Paul Emery tax partners at PwC says: "Council tax is based on 1991 valuations and is ripe for reform. The chancellor could redistribute the tax burden to areas that have received high property growth. If he wants to raise more revenue, he could remove or change the cap on the upper rates of council tax and introduce further bands."