There only a few days to go until Chancellor Jeremy Hunt delivers his first major fiscal set piece, but despite the unseasonal mild weather, the Autumn Statement is shaping up to be the big freeze.
As potential measures continue to leak out of the government to the press, the threshold for inheritance tax (IHT) could be frozen until 2028. If these reports are true then it would add IHT to a list of frozen thresholds that include income tax, national insurance and the pension lifetime allowance.
Mr Hunt needs to consider a range of measures for a fiscal hole that is estimated to be between £40 billion and £50 billion in size. By freezing these thresholds, he will launch a ‘stealth’ tax raid to raise cash for the government.
‘We are all going to be paying a bit more tax’
The Chancellor spent the final Sunday before his Autumn Statement doing media interviews to set the scene. He did not sugar coat his message warning that tough decisions will have to be made. As well as cuts to public services Mr Hunt warned that: ‘We are all going to be paying a bit more tax.’
The question now is where the government will look for increased revenue although most of the likely changes have leaked out to the media in recent weeks.
The Chancellor is planning to extend the freeze on IHT at the threshold of £325,000 for two extra years, according to media reports.
When Prime Minister Rishi Sunak was Chancellor he froze the threshold until April 2026. Now he and Mr Hunt have agreed that the allowance should be frozen until 2028, news reports suggest. According to some estimates, this will mean 10,000 more families are liable for IHT and will raise an extra £1 billion for the Treasury.
The £325,000 IHT threshold for individuals was set in 2009. By freezing it until 2028, the allowance will have remained the same for almost two decades. If the £325,000 threshold had risen in line with CPI inflation since its inception in 2009, it would now be worth £464,643, according to the Bank of England’s inflation calculator.
However, this is a politically risky move as IHT regularly tops polls of the most disliked taxes. A recent YouGov poll showed that over 60% of people would like to see the threshold for IHT increased.
Freezing these thresholds will not close the fiscal black hole created by September’s disastrous Mini Budget that cost Kwasi Kwarteng and Liz Truss their jobs on their own. They are part of a range of spending cuts and tax changes being considered by the Chancellor.
These include raising the windfall taxes on oil and gas companies to 30% and extending it until 2028. Mr Hunt is also considering raising capital gains tax (CGT) and cutting the dividend allowance.
Investment Zone roll back
The Chancellor has already rolled back the majority of measures announced in the Mini Budget. Now reports suggest he will axe Investment Zones, which was one of the few surviving plans.
Kwarteng announced the zones to offer businesses generous but temporary tax breaks as well as relaxed planning rules to encourage the construction. Mr Hunt has now put the project under review ahead of the Autumn Statement and the zones could be scaled back; altered to an urban regeneration policy; or axed altogether, according to news reports.
The Chancellor will deliver the Autumn Statement, alongside a forecast from the independent Office for Budget Responsibility (OBR), on 17 November.
Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our non-branded, digital products.