The Budget Breakdown - Episode 2

In this episode, Mark Morton dives into the swirling speculation around the upcoming UK budget. From leaked memos and proposed tax hikes to the political balancing act behind non-dom policies and dividend allowances, Mark offers a candid take on what might be coming and what it could mean for businesses, investors, and taxpayers. With reflections on corporation tax, CGT, pension reforms, and the messaging that drives economic migration, this is a sharp, accessible breakdown of fiscal policy in motion.

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Transcript

Hello everybody. It is Mark Morton here just with a little bit of a podcast relating to the budget and what may be coming. Of course, the chancellor, broadly a year ago, said to the CBI, she was not coming back with more borrowing or more taxes. Anyway, a year is a long time in politics, so we shall see. 

There have been all sorts of things leaked through the press to test the water. I think in many respects, one of the most interesting in my mind that came out in the Telegraph actually was a leaked memo. Which apparently had been sent by Angela Rayner. Now I can only imagine that Angela Rayner was the one who leaked it. 

But it was quite interesting what was being suggested in there in terms of tax policies. One of them was win full taxes on big institutions. Increasing the rate of corporation tax on banks is one of the things in there. As we all know, though, a bit like non-doms, I think. If you keep whacking up tax rates on certain businesses at some point in time, those businesses, non-doms, those individuals are gonna say thanks, but no thanks. 

I'm off. And it is a difficult balancing act, so keep going to the same, you know? Well, with more and more taxation, having increased, certainly the employment costs of a lot of those British businesses in the last year, I think is pretty dangerous. Would it raise, you know, a bit like, you know, we want a wealth tax? 

Well, the danger is with a wealth tax, the wealthy people leave and therefore you have no, you know, you've lost income. And I, it'll be really interesting with the non-doms ultimately driven by politics ultimately. I really struggle. You know, it is not trying to say to really seriously wealthy people, you know, you don't pay tax when other people do, but fundamentally. 

What we've seen and those with clients that were non-dom, a lot of firms out there will know that some of those people have left the uk, you know, so the policy was RO supposed to be broadly revenue neutral. So once you get over the sort of inter initial sort of three year repatriation facility, which is supposed to bring in money, but only really works if you decided to stay in the first place. 

After that, it was broadly revenue neutral. I think the danger is by the time you get there, what you'll find is it wasn't revenue neutral. You've lost money because of the messaging that came with it. You know, I was listening on the radio this morning, somebody talking about, you know, and it's all third hand, but a British entrepreneur, youngish man, 41 saying, how's Dubai looking? 

Basically because it seems a more attractive place to personally from a taxation point of view and the messaging. So it'd be interesting increasing the rate of corporation tax was one of those things that in that late memo, the second thing was extending the freeze of additional rate band at 125 grand past 2028. 

Frankly, if I'm honest, I can't believe at the minute that any government, let alone this particular government would increase. The point at which you pay additional rate different matter about ultimately, at what point do you reduce it? Do you increase it, et cetera? Do you increase the rate of tax? 

The problem is. There are ultimately in this country, so few people that have income over 125 grand in the scheme of things, that even putting up to 50% ultimately doesn't generate that, that much money compared to the money we need. You know, I'd guess broadly it would raise less than a billion. By putting up maybe from 45 to 50, because some people then say, well, I'll only take, you know, 125. I won't take any more. You can control your income. Some people say, that's too much for me. Some people use planning schemes as we saw once upon a time when the last labor government increased it or introduced it at 50%, it created a raft of planning. 

Because people feel clearly felt it was too much. So that was suggested. I mean, I can see the freeze being extended sort of indefinitely on that level. I'm struggling to see may, maybe you reduce the threshold at which people pay 45% to a hundred grand. I could see that. I can't see it going up. 

Certainly somebody was trying to tell me that they thought income tax rates would go up. At all levels. But I think you get mixed up in the politics of it now, personally. You can get I personally would get rid of the employer's increase and put employees national insurance back up to what it was because most people, it's not a significant amount of money. 

Most people didn't even realise it had gone down that much, and hence wouldn't know if it had gone back up that much. And that would broadly even out with what the employees increase raised, most employees do not Studen deny they don't recognise the figures. They wouldn't know really what it cost them per month, saying that basic rake income tax has gone up to 22 would be on the front page of all the newspapers, and people would understand that. 

So personally, I would be. Amazed if income tax, headline income tax rates other than the other than 45% change because that would be understandable and that would lose a lot of votes, I think. You know, so the mixture of the taxation and the politics of it. Something in that leap memo, which I'll scrap the dividend allowance increase the rates on dividend taxation. 

The broad idea being only rich people have dividends or something along those lines. Increased rates of CGT, 'cause only rich people have capital gains and so on and so forth. The dividend allowance at its current level now is so low and drawing so many people into taxation. I mean, it's interesting. 

Government estimates, HMRC estimates estimate that cut from two grand to 500 bring about four and a half million people into taxation anyway. The issue is the admin of that. I think, you know, do people understand that what happens if they don't notify the revenue can assess 'em for 20 years if they're not self-assessment? 

The admin is crazy. Very similar issue to do with bank and building society interest, obviously. If you're not an SA person, how you're gonna know you're back into the world of assessments and I've, I started off, I grew up in a world of assessments. There's a whole generation of accountants never seen an assessment, and now we're going back to an assessment, which isn't right, and you appeal it again. 

The only downside is we don't have a lovely pink appeal form anymore. So. In some respects what I would do, I think I dunno how the numbers would pan out, but I would go back to the old system tax credit on a divvy tax deduction source on bank and building society interests, which, you know, stops any need for basic rate people to get in involved with the tax system. 

And then if you're high rate and above, you understand that point and you've gotta file a tax return. In many respects, I think if you're gonna go down this route, you've almost gotta go to a system of. The American system where everybody is oblige to file a tax return every year or a, an online statement because the admin at the moment, the way the revenue are doing it, is hugely time consuming and costly for them and for us, sorting it out and trying to work out whether it's right, et cetera, et cetera, et cetera. 

So again, that was mentioned in the memo reintroducing the lifetime allowance. So that on big pension pots, you essentially had a clawback charge. So, 55% stroke, 25% clawbacks. I would have some sympathy for that. Bearing in mind, the only reason it was really taken away was to appease doctors who are primarily paid out the public purse anyway. 

So, it would upset some people, but I would have more sympathy for that, saying you've had a lot of tax relief on the way in. You've got a very big pension. That would maybe rule out the need to say that we need to put pension pots in an IHT fund or an IHT now I should say. I think the other thing I would be doing is saying forget the IHT particularly on private pensions, which is where it really sits. 

What we're gonna do is change the income tax rule. So if you leave it to the next generation, that is fine. There's no IHT, but when they draw it, there is income tax on what they draw. You know, this nonsense about under and over 75. I've never really understood why that exists. So let's get rid of that and say, leave it to the next generation. 

Fine outside your estate. But when they draw it, they pay income tax on it like anybody else. You know, then you've achieved the same aim. Ultimately the final thing that was mentioned were, was changes to inheritance tax, but particularly saying a IM shares, which of course go down to 50% from next April 50% business property relief saying no a IM. 

You know, no BPR and a IM shows whatsoever. The problem is you are already seeing the effect of that on the a IM market, taking away the IHT relief, you know, there are other consequences of these policies. So all those things being put out into the press early in the year, that was may time. 

That sparked obviously one or two other things that have come out that we will talk about in subsequent podcasts. But some thoughts to be chewing on with, but the point to note, you know. These memos are not leaked by accident ultimately, and all of this is about testing the water, you know, see what we can get away with, see who's upset, you know, scrap the dividend allowance. 

In the scheme of things, you know, maybe you can see not that many people ultimately receive dividends as opposed to interest. So maybe you could get away with a bit of extra tax there. But the complexity of it is the other side. Anyway, there we go. We will see what transpires over the next few weeks. 

And in the next podcast, I'll be talking about pensions and possible changes to pensions, which have been dripped out through the press. Take care everybody.