Recently in Conservative party policies Category
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.
As you probably heard over the weekend, Gordon Brown decided not to call an election after all. He arrived at this decision after studying polling data that suggested a huge swing to the Conservative Party as a result of their promise to raise the inheritance tax threshold to £1m.
Wow. So tax cuts are popular, after all? Who's have thought it?
The Pre-Budget Report is being delivered tomorrow. Expect Gordon Brown to come up with a copycat inheritance tax cut. But expect it to be, in typical Brown style, stingy, complex and extremely difficult and wasteful to administer.
There might not be any detailed inheritance tax relief in the Pre-Budget Report, but listen out for a statement about wanting to ensure 'fairness' in the inheritance tax system.
But what does it matter if Brown nicks the Tory policy? If he does, everyone would know that that was what he did, and that can only be good for the Conservatives, and the taxpayers who will benefit. If, on the other hand, he introduces a less generous relief than that being promised by the Conservatives, everyone will see that, too.
Arguments about the Conservative Party's promise being 'uncosted' and 'unaffordable' won't work, either. Even if Brown manages to put out figures to claim that the expected tax from 'non-doms' won't be enough to pay for the Conservative tax promise, all the Conservative Party has to do is point to the almost £2bn mistakenly overpaid every year within the tax credits scheme. Those wasted funds should go a long way to paying for the inheritance tax promise. Somehow I doubt that Brown would much welcome attention being drawn to the annual £2bn tax credits overpayments, seeing as he was the Chancellor who presided over the whole shambles.
- abolition of stamp duty land tax for first-time buyers of property costing below £250,000; and
- raising of the inheritance tax nil rate threshold to £1m.
- 0 per cent for properties costing £125,000 or less (good luck finding a house at this price in the South of England!)
- 1 per cent for properties costing more than £125,000 but not more than £250,000;
- 3 per cent for properties costing more than £250,000 but not more than £500,000; and
- 4 per cent for properties costing more than £500,000.
The proposal to raise the inheritance tax nil rate band is very welcome, and is something that has been argued for in the past here on this blog.
The Conservative Party leadership has committed itself (what were they thinking!) to Labour's spending plans for the first three years of a Conservative Government. This means that the tax cuts being proposed cannot be funded by a cut in spending, not even by a cut in wasteful spending - tax credits are overpaid by about £2bn a year, surely they could have targeted that. Rather the tax cuts will be funded by an annual levy of £25,000 on non-UK domiciled individuals, living in the UK, and currently enjoying favourable tax status.
I am happy with the plans - not ecstatic, but you can't have everything. I would have preferred for the taxes to be funded by savings identified through eliminating wasteful public spending. However, I appreciate that saying that would cause jitters up and down the land, as Labour would seize upon it to claim that the Conservatives would like to 'cut vital public services'. So I am happy. Let's just hope the green tax proposals are as just as sensible.
The Conservative Party is proposing that, if elected into office, it will establish a scheme to compensate folks whose pensions were adversely affected when their retirement schemes collapsed.
The Fisherman is heartened to hear this, but feels that the plans do not go far enough. What about restoring the dividend tax credit abolished by Gordon Brown in his insatiable thirst for yet more money? That decision has done great harm to occupational pensions, and the Conservatives should think of reversing it.
Generally speaking, as far as occupational pensions are concerned, people do not want handouts. Far better for the Government to create a favourable tax environment in which to save, and then leave it to citizens, markets, employers etc to sort out pension provision.
The Conservatives are a bit cautious at the moment. Greedy Gordon's pension tax grab brings in about £5bn per annum. If the Conservatives reverse the abolition, that would mean £5bn less for the Treasury every year. The Conservatives are wary about promising to restore the tax credits because they have no way of knowing what the state of the public finances would be when they get into office, and thus whether a £5bn yearly shortfall would be easy to cope with. Very understandable, but The Fisherman still thinks that the Conservatives should be bolder. For starters, there is so much wastage of public funds, and one could easily achieve savings of £5bn per year by addressing that. (For example, tax credits have been overpaid by around £2bn per year for the past two years.) In addition, the Conservatives have already undertaken to abolish the identity cards scheme. That should free up a few billions.
Five billion pounds a year is a lot of money, but still affordable if someone takes the public finances in hand. The Conservative Party should make that pledge, and back it up with a promise that, on being elected to office, it will restore the dividend tax credit.
The first in my series of articles explaining the report of the Conservative Party's Tax Reform Commission.
An interesting chart showing the corelationship between the tax burden and economic growth.
Interpretation: the higher the tax burden, the lower the economic growth.
High taxation affects:
1) labour supply. It reduces the incentive to work, as the more you work, the higher the tax. People (mainly higher income earners) then choose to work fewer hours. This is known as the 'substitution effect'. At the other extreme, people (mainly lower income earners) may decide to work longer hours just to earn the amount they were previously earning. This is the 'income effect'.
2) investments and saving. If the growth in value of an investment is subject to a high tax rate, it becomes an unattractive venture, and potential investors may decide not to bother. Similarly, if the tax rates on savings are high, people may decide that it is better to spend the money on themselves.
So far, so uncontentious.
The Fisherman's copy of the Tax Commission report has arrived. So far, seven pages read out of 176. The Fisherman is in broad agreement with the executive summary. Also, plenty of material in there to support the assertion that lower taxes are good for the economy. Just to point out that the £21b figure does not take account of a reduction in the higher rate of tax. This is made clear in the report. So it's not (as some would report) all about 'helping the rich'.
The Tax Commission set up by the Conservative Party to advise on tax policy has submitted its report. The Commission, chaired by Lord Forsyth of Drumlean, has identified £21bn worth of tax cuts. Reports of proposals of tax cuts of £19bn (see my earlier post) were not that far off, after all.
The press conference is due to take place tomorrow. Unfortunately, some bright spark put the report on the internet earlier today. It was taken down within an hour, but not before it had been viewed by the 'wrong eyes'. The eyes in question belonged to uncle Gordon's right-hand man, Ed Balls. He made a panic-stricken appearance on the Sky News, trying his desperate hardest to rubbish the report. The arguments are predictable: 'where is the money going to come from?' 'what services will they cut?' 'only 5 per cent of people pay inheritance tax, so this is a tax cut for the rich', 'same old conservatives', etc etc.
On the day Gordon Brown tries to repair his battered reputation in the City, the Shadow Chancellor, George Osborne reiterates the Conservative Party's proposal to abolish stamp duty on shares.
The Tories are expected to adopt the Forsyth Commission recommendation to abolish this tax, but why stop there? It is rumoured that the Forsyth report, which will be published tomorrow, has identified over £19b worth of tax cuts. Expect David Cameron to back away from the fight.
