Pre-Budget Report - some highlights

Inheritance tax - transferability of allowances between spouses and civil partners.
A cunning move to unsettle the Tories, but let us see how this tax break works in practice.

Capital gains tax - abolition of taper relief.
Yes, you heard correctly. Taper relief, which was introduced by Gordon Brown in 1998 to replace the indexation allowance, is now to be abolished. Another example of a tax u-turn by this Government. Remember the zero per cent rate on corporation tax?

The abolition of taper relief is being spun as a necessary measure to deal with the private equity issue. However, they are not the only people affected. Taper relief is available to every taxpayer who disposes of chargeable assets, so they are all affected. See Bel for an interesting piece on the effects of the abolition.

Also with the abolition of taper relief is the 'withdrawal' of indexation allowance. What does this mean? Does it mean that any indexation allowance accrued to date, is lost? When selling a capital asset, allowance is normally made for inflation from the date the asset was acquired, or March 1982, whichever is earlier. This inflation is calculated as an 'indexation allowance', and deducted from any gain on sale. Indexation allowance is abolished for sales by individuals with effect from 1998, and replaced by taper relief. So what would happen would be that, on a sale after that date, indexation allowance is calculated from the date the asset was acquired until April 1998, and then taper relief would be calculated from that period onwards. So the indexation allowance that was built up was preserved.

I assume that, when the April 2008 changes take effect, any indexation allowance accrued until April 1998 will be preserved - there will be a huge outcry otherwise.

Indexation allowance still continues for companies, and I assume that this remains the case even after April 2008.

£30,000 levy on non-domiciles.
Well, you know where they got that idea from. They just added an extra £5,000 to the Conservative Party's proposal.

To read the Pre-Budget Report notes in full, click here.