Chancellor George Osborne yesterday revealed he has identified how the government will make the £12bn of welfare cuts promised in the Conservative election manifesto which will be announced in an emergency budget on Wednesday this week.
Osborne reportedly said local authority and housing association tenants in England will have to pay a larger amount in rent, as long as they earn more than £30,000 a year, or £40,000 a year in London.
The Chancellor also suggested he has plans to fund an increase in inheritance tax exemptions on properties worth up to £1m by reducing the maximum annual tax-relievable pension contributions for those earning above £150,000.
Steven Cameron, regulatory strategy director at Aegon, said: “While both of these measures will only affect those with high earnings or property wealth, it does raise questions around the government’s attitudes towards property versus pensions.
“With the prospect of it being acceptable for main residential properties of up to £1m to be passed on by parents to their children tax free, surely reducing the maximum pension fund to £1m, when it is designed to fund an income throughout decades of retirement, looks far too restrictive.
“While the reduction in annual pension allowance for higher earners is disappointing, we hope the Chancellor will not make matters worse by also reducing the pension lifetime allowance included in the Conservative’s pre-election manifesto.”
Tom Stevenson from Fidelity Worldwide Investment agreed. He said: “The fudge in the last budget limiting relief to bequeathed properties was an unsatisfactory half way house.
“A no-strings-attached £1m inheritance tax allowance would be hugely popular and would chime with the thinking behind the recent legislation to allow pension savings to be passed more easily down the generations.”
A lot of speculation surrounds Wednesday’s budget accountancy firm PricewaterhouseCoopers suggesting “extending existing taxes on high-value properties would be the most likely step Mr Osborne could take to raise money from property”.
Another area that the Chancellor may change is council tax, said PwC. This would mean revaluing the housing stock in the UK, as brackets are still based upon the 1991 valuations which no longer reflect current value.
Paul Emery, a tax partner at PwC, said: “The UK is ripe for reform. There’s the potential to raise billions of extra revenue. This may be done by removing caps on upper rates of the council tax, or by introducing more bands.”
The government has already announced the introduction of a Help to Buy Individual Savings Account and also a family home allowance of £175,000 on inheritance tax, which means that a married couple or civil partners can potentially leave property worth up to £1m to their children without an inheritance tax charge from April 2017.
