In view of the pressures faced by families these days, did Rachel Reeves’ budget do anything to make those easier?
Not really; the chancellor is relying heavily on tax rises towards the back end of parliament to pay for spending. Because of the freezing of the annual allowance, for a further three years, more people are going to be brought into the higher range of tax, which is tax by stealth and is going to hit hardworking families. Despite the promise of not raising taxes, that is effectively what this government has done. There has been some spending to assist families at the other end of the scale; those on universal credit have had the two-child limit scrapped. Those saving for retirement have also been doled out tax increases on salary sacrifice pension contributions, unearned income, business investments and increased capital gains. All of these may weaken the incentive to save and invest.
Property Implications
As far as property is concerned, the existing council tax system is still based on property values back in 1991 and there is now a mechanism for taxing high value houses, based on what the house is worth today. This is not going to be implemented until 2028, but will provide a further surcharge of tax on those living in properties worth £2 million or more. One might say that this is regional discrimination; down in the South East and London area it is far easier to beat this threshold than it would be in the Northern areas.
The overall tax burden is forecast to increase from 36.3% GDP in this financial year to 38.3% in 2030 – 2031. According to financial analysts, the overall tax rises announced in this parliament would exceed those announced in any other since at least 1970.
What does this mean for families struggling and those wishing to share out assets in divorce?
Going forward couples may choose to sell expensive houses that could qualify for this tax and replace them with two separate houses, which may be a positive incentive to sort out affairs. The pension limit has not been increased and there is less incentive to save because of taxes on salary sacrifice (now limited to £2,000 above which national insurance would need to be paid) and interest on savings.
Cohabiting couples who are not in a marriage or a formal civil partnership, will still not be able to take advantage of a double inheritance band to protect their assets on death. The legal background of supporting families is still as convoluted as ever; cohabiting couples who are not in a civil partnership do not have any statutory protection, and their property interests will be defined by case law going back tens and hundreds of years. The Matrimonial Causes Act 1973 is due to be updated, but this is not a priority for the present government, and we still have a patchwork quilt of statute and case law determining different outcomes as to whether you are married or not, how you own property and whether a child was born within a marriage or not.
Apart from an increase in special education resources, there appears to be little to assist the modern day family in this budget, despite the fact that on the face of it, Rachel Reeves has fulfilled her promise of not increasing taxes or national insurance contributions.
If you are unhappy in your relationship, it is best to take advice, just to check where you are and the resources available, in order that you can plan in an informed way.
We are here to help you with getting prepared for the changes. If you are concerned about the changes or want to obtain advice on your options, please contact Lynn Cowley 0345 646 0406 to see how we can help you.