4 things we’d like to see at the Summer Budget
Set against the backdrop of Greek financial turmoil, raging debates on the merits of austerity, and unrest over impending welfare cuts, Wednesday’s ‘emergency’ Budget – the Conservatives’ first in more than 18 years – promises to be one of the more intriguing ones in recent memory. Chancellor of the Exchequer George Osborne has already made clear that cuts will be the name of the game, and reports that he will spearhead legislation forcing the Government to run a budget surplus within two years have sparked fears that the axe will come down harder than initially expected.
Naturally, it’s had the effect of polarising opinion, but rather than weighing in on the wider debate, we’re taking a look at four things we’d like to see emerge from the speech.
1. Go easy on pensions tax relief
Taking into account HMRC figures, Michael Johnson of think tank the Centre for Policy Studies estimates pensions tax relief has a collective cost to the Exchequer of more than £50 billion per year. Such an inflated figure certainly puts these retirement perks very much in the firing line, and Osborne is widely expected to slash the amount of savings on which higher earners can claim full tax relief to £10,000 from the current figure of £40,000 (on a sliding scale).
Yet aside from the complexities this would add to an already-complicated pension system, we believe such a decision would send out the wrong message to savers. True, the auto-enrolment process means that all earners will be saving into a work pension of some variety (unless they explicitly opt out). However, such a drastic cut to tax relief will succeed merely in discouraging people from saving for retirement. Worse still, experts are predicting that the relief on the 25 per cent lump sum initial withdrawal on pension pots may be reduced, or even scrapped altogether in the short term.
Such a raid on pensions would not only be at odds with the positive momentum generated by the April reforms, but cost over 55s in an ageing population thousands of pounds in lost tax relief. Rather than making pensions less attractive and harder to understand, we’d like to see Government impose a flat-rate percentage for pension tax relief; and a generous one which rewards people who save sensibly for their golden years.
2. A crackdown on non-doms
Non-doms are those who live in the UK but are not legally domiciled in it, meaning they are not obliged to pay Income or Capital Gains Tax. Some of the estimated 116,000 claiming non-dom tax status have not only been able to obtain tax advantages by their country of residence, but also found ways of avoiding paying tax here – either legally or illegally.
Some have argued that the plan to increase the annual tax charge paid by non doms, and/or preventing parents from passing the status onto their children, would give the cold shoulder to a demographic which is responsible for a substantial amount of spending in the general economy. In addition, a fair chunk of tax receipts is generated from the stamp duty land tax they pay, not to mention VAT.
Nevertheless, we believe that a prospering UK economy will continue to attract these non-doms regardless, and that a crackdown is necessary – be that raising the annual charge they pay, or removing the tax advantages for the ‘second generation’ - in order to take some of the heat off the UK’s citizens in these times of austerity.
3. Changes to the tax regime
Regardless of which tax band you may find yourself in, discussions surrounding Income Tax rates and the Personal Allowance will have been of great intrigue, and it looks as though these may well be a source of good news for the masses. Those paying the top rate of tax were tantalised by suggestions that Osborne would cut it from 45p to 40p at this week’s Budget. Perhaps in the face of severe criticism, such a ‘tax cut for millionaires’ appears to have been foiled.
However, rumblings from the Chancellor in the last few days suggest he remains intent on raising the tax-free allowance to £12,500, and that the threshold at which people pay the higher rate of tax (40p) could soar to £50,000.
Populist politics and sound economics aren’t always a good mix, but such a sweetener would be a shrewd move to counter what will likely be a Budget remembered for hefty cuts. In addition, taking the minimum wage out of tax will only serve as further encouragement for those out of the workforce to get back into it, while all in sundry will benefit from the increased Personal Allowance.
4. A peer-to-peer ISA
Of all the things we’d like to see, this unquestionably tops the list and would represent a tremendous coup for the peer-to-peer lending industry. Inclusion within the Individual Savings Accounts (ISA) framework is a huge boost for the sector as it is, but a crucial decision remains… will P2P loans be allocated within the existing Stocks & Shares wrapper, or will a separate ISA be created?
The latter would be the more preferable outcome for both platform and customer alike. Peer-to-peer lending, by nature, is very different in terms of risk and reward compared with savings or stocks and shares, and by creating a standalone ISA, platforms will be better placed to clearly define and communicate to lenders the risks and rewards involved with making P2P a part of their tax-free savings portfolios.
Furthermore, a survey conducted by the Peer-to-Peer Finance Association earlier this year showed 74% of existing lenders in the UK favoured the idea of keeping their peer-to-peer lending in a separate ISA.
There have been no explicit indications yet that the Budget will be the occasion for the announcement of HM Treasury’s verdict on the implementation of peer-to-peer lending within ISAs, but Osborne has garnered a reputation for providing a surprise or two at his Budget speeches. And by delivering favourable news on the issue, and sticking to the three other recommendations we’ve offered above, the Chancellor would certainly get a nod of approval from us, and, dare we say it, many of our customers too.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.