Tax cuts for younger voters could be on the horizon in the upcoming Budget.
It’s believed the Chancellor of the Exchequer is keen to introduce measures to rouse this demographic, after failing to attract a high percentage of votes from them in the last election.
Reports suggest this incentive could come in the form of a National Insurance cut for those under 26. The government has already pledged to freeze higher education fees until 2019 and increase the student loan repayment threshold from £21,000 to £25,000.
These tax cuts may come at a cost to older voters, with speculation suggesting the pension annual allowance could be decreased.
What could the 2017 Budget changes be?
National Insurance is levied differently depending on how much income you earn and whether you’re employed or self-employed.
- employees pay 12% National Insurance on income between £8,164 and £45,000, and 2% on anything above that amount.
- the self-employed pay 9% on income between £8,164 and £45,000, and 2% on anything above that amount.
It’s not known what the Chancellor may do to offer younger people a tax break.
It’s not inconceivable that he could drop National Insurance for those under 26% to the same level as the self-employed.
Pensions annual allowance
The annual allowance is the amount you can put into a pension each year to earn tax relief. People earning less than £150,000 can put in as much as £40,000 a year.
Those earning more see their annual allowance reduced, by £1 for every £2 they earn over £150,000, until they reach a £10,000 annual allowance floor. This means that by the time you earn £210,000, you can only save £10,000 a year into a pension to earn tax relief.
As the chart shows, the annual allowance has been significantly reduced in recent years. In 2011, it was £255,000 – over the subsequent 6 years, it’s been cut by £215,000.
Speculation is rife that the annual allowance could be cut again, to £30,000 for all. If the annual allowance reduction rules remained in place, that means any lower earner would have the same annual allowance as someone who currently earns £180,000 a year.
What is the Budget?
In his Budget speech, the Chancellor of the Exchequer lays out what the government plans to spend taxpayers’ money on in the coming financial year. Major changes to personal and business taxes are announced in front of all MPs at the House of Commons.
The speech for the 2018-19 tax year takes place on Wednesday 22 November. This will be the first time that the Budget has taken place in the autumn for more than 20 years.
It’s common for major policies to be leaked before the speech itself, although any plans to cut taxes for young adults won’t be confirmed until the speech itself.
To keep up to date with the latest Budget speculation and all the key changes announced in this year’s Budget, subscribe to the Which? Money Weekly newsletter.
Submitting your tax return
The deadline for submitting a paper tax return for the 2016-17 tax year is Saturday 31 October.
If HMRC receives your tax return after this date, you’ll be subjected to a £100 fine, so don’t leave it to the last minute.
The deadline for online tax returns is Wednesday 31 January 2018, so you’re better off submitting your return online than sending a paper return late.
The Which? tax calculator is an easy-to-use jargon-free tool which offers personalised tax tips and even submits your return directly to HMRC for you.