Recently in Tax burden Category

The Telegraph is reporting that families are facing their highest tax burden since 1991.

Not at all surprising, I must say.

Much of the increase comes from stealth taxes. The basic rate of income tax has not moved much in the past 17 years: recently, we've had 23%, then 22%, and now 20%. However, council tax has shot through the roof, as have indirect taxes such as the excise duties on fuel. Oh, and let's not forget fiscal drag - that convenient ruse by which Chancellors rake in more tax by increasing the tax-free allowance by the rate of inflation, well knowing that salary rises oftentimes exceed that rate. Result? More people fall to be taxed as higher earners than would otherwise be the case.

So yes, none of this is surprising. The only surprising thing is that the Telegraph article does not contain any remarks from a Government minister. In time past, someone would have turned up to dispute the data, claiming that things have never been rosier for the British people. So did the Telegraph not bother to ask a minister to comment? Or could it be that no Government minister came forward to argue the case? Perhaps they all now realise the desperate hollowness of their empty words, not just to the electorate, but more significantly, to themselves?

Most likely. The Telegraph is reporting that Alistair Darling is thinking twice about the retrospective "green" taxes introduced in the last Budget. Good to know that someone in this Government is waking up to the lunacy of the whole idea. They claim that the punitive rates of tax on environmentally unfriendly cars is necessary to "change behaviour". But if so, why apply that tax to cars that have been on the road since 2001? In such cases, the so-called offending behaviour has already taken place, and more importantly, was not "punished" at the time. Why punish a man for buying a car 7 years ago, long before the green tax greed infected tax policy?

Who will rid us of this clueless bunch of incompetents? It would all be so hilarious were it not for the fact that they are causing proper damage to everything they touch.

Still, the u-turn is welcome news, if true.

Faint warnings (for now at least) of the possibility of a "broadband tax" to pay for the public service programmes put together by commercial TV stations.

The proposals are being put forward by the Office of Communications (Ofcom), the regulator for telecoms. It is included in their latest public broadcasting review. Click here to read the pdf, if you must.

So Ofcom thinks it's a good idea to introduce a tax to pay for such programmes. In their words,

It might be possible to introduce levies on providers not currently part of the formal public service broadcasting model, such as broadcasters, equipment sales, internet service subscriptions or UK online content providers.

Interesting how they use the less aggressive word, "levy", to describe what is in essence, a tax.

Needless to say, this "levy" will not be borne ultimately by the internet service provider. Rather, it will be passed down to the poor consumer, who will have to pick up the tab for whatever passes for "public service" programmes in dumbed-down Britain today.

What rot. Now I have nothing against public service programming - some of the programmes are quite good - but I fail to see why the average broadband user should be made to pay for programmes for which he does not care. If these public service programmes provide value, surely it shouldn't be too hard for them to find some commercial sponsors, and leave the poor taxpayer alone. If, on the other hand, they can find no advertisers or sponsors for their wonderful programmes, then perhaps we are all philistines who do not know what is good for us. Forcing us then to pay for such programmes would not be right, as we obviously do not value them enough to watch them. But perhaps Ofcom does not care whether or not we watch; they are simply satisfied if they can part us from our money.

Protests are mounting over the abolition of the 10% rate. Even Government ministers and high-ranking Labour Party members are joining in the criticism of the Government.

Gordon Brown will probably calculate that it would be too embarrassing to do a U-turn and keep the 10% rate after all. Even so, he will probably feel he has to do something to give the impression that he cares about the lowest earners and pensioners who will be most affected by this measure. This is my prediction: the announcement of a benefits package "providing targeted help to the most vulnerable in society". Therefore, more tax credits. In other words, more form-filling, more bureaucracy, more complexity, more waste.

It would be easier simply to raise the tax-free allowance to, say, £10,000, thereby ensuring that the lowest earners get to keep most of their income. However, don't hold your breath.

The 2008-09 tax year begins today, with loud cries of protest over the abolition of the 10% tax rate ringing in the Government's ears. Technically speaking, the 10 tax rate still exists, but only for "savings income", i.e. interest and similar income. Employment and pension income will be taxed, initially at 20%, and then at 40%.

The basic rate is reduced from 22% to 20%, however, this is small comfort to the lower earners who will be hit hard by the loss of the 10% rate.

Will the Government change its mind, and keep the 10% rate after all? Not such a far-fetched idea; this is, after all, a Government whose tax policy consists of blunders and U-turns. The Finance Bill is currently going through Parliament, so until it receives Royal Assent in mid-July, anything is possible.

A few days ago, I wrote a post on this blog entitled 'Abolition of taper relief - will there be a U-turn?'

The answer, from reading today's Telegraph, appears to be 'yes'. That in itself is not surprising; the surprising thing is that the U-turn has come so soon. I was expecting that we would have to wait until the 2008 Budget to find out that the Government had changed its mind in some way or the other.

Apparently, the U-turn consists of reviving some aspects of the old retirement relief rules. Retirement relief was a capital gains tax relief available to taxpayers who were disposing of their businesses after attaining a certain age, or retiring earlier due to ill health. The way the relief worked was that a certain amount of the gain was exempted from capital gains tax, and any amount in excess of that threshold would attract the tax at the normal rates. The relief could only be claimed once in a taxpayer's lifetime.

The U-turn being proposed now is that taxpayers disposing of their businesses would be entitled to the first £100,000 free of capital gains tax, with the 18 per cent rate to apply to any gains in excess of that threshold. Like retirement relief, the £100,000 can only be claimed once in a taxpayer's lifetime. In effect, it is a 'retirement relief', because if the taxpayer went off and started another business, the relief would not be available to him when he came to dispose of it.

As usual, I will wait until I see the actual detail of the proposal before I comment fully on it.

Turns out this blog was right to be sceptical about the news that the proposed bin tax was to be shelved.

The charge hasn't been shelved after all. It has reappeared in the Climate Change Bill, which gives local authorities the power to levy the charge.

This means that the Government will be able to distance itself if or when a local authority actually introduces the charge. The Government can claim that the decision to levy the charge was an 'independent' one made by that council.

But will it really be an 'independent' decision? A squeeze on local authority funding by the Government could very well lead to a local council introducing the charge. I wouldn't call that an 'independent' decision by the council.

So forget last week's spin by the Government. The threat of bin taxes still remains.

Given the outcry about the proposed changes to capital gains tax taper relief, don't be surprised if the Government performs a U-turn in next year's Budget.

Here are my predictions:

1. They may decide to 'phase in' the abolition of the relief, in order to take some of the sting away. Maybe by tinkering with the rates somewhat. You can trust this Government to make things more complicated than they need to be.
2. They may decide to exclude certain assets from the 18 per cent rate. I'm thinking of things that would currently qualify as 'non-business assets' under the taper relief rules. Things like second homes, shares held for investment purposes, etc. They may decide that these should continue to be taxed at their current (higher) rates.
3. Instead of (2) above, they may create a 'special exemption' from the 18 per cent rate for assets that currently qualify as 'business assets' for taper relief purposes. Those can continue to be taxed at the current effective rate for higher rate taxpayers of 10 per cent. There will, of course, be stringent conditions to be met before an asset can take advantage of the special exemption.
4. Or they can just quietly shelve the whole abolition of taper relief thing, and pretend it never happened. This should be the easiest way out. Of course there would be taunting and jeering from the Opposition benches, but if the Government is brave enough to weather that (which I doubt), then this would be the best thing all round for everybody. Don't bank on it, though.

Good news. The Government has come to its senses and abandoned plans for a pay-as-you-throw domestic waste tax.

I discussed the lunacy of such a bin tax some time ago. There are all sorts of reasons why this tax was such a bad idea, not least the public health reasons: taxing people for throwing out rubbish will simply lead to fly-tipping and all the hazards that would follow.

Anyway, according to the Telegraph, Gordon Brown has intervened to scrap the plans, out of fear that they could cost the Labour Party dear in next year's local government elections.

Hmm. So does this mean that the plans could be revived once the danger of the local elections is past? We will find out soon enough.

I mentioned earlier that I would be taking another look at today's announcement on inheritance tax, to see how it might work in practice. I have looked into it a bit more, and can report that the tax benefits purported to be conveyed by this relief, are already available, without the need for today's announcement. It is currently possible for spouses and civil partners to draw up their wills using nil band discretionary trusts to achieve exactly what Alistair Darling has so generously given us today. So a little bit of tax planning from a high street practitioner would achieve the same result. People who are worried about inheritance tax would have taken these steps, anyway, as one would assume that their lawyer would have advised them to draw up appropriate wills. Therefore, all that Darling would have saved them by today's announcement, is the lawyer's bill - approximately £1,000.

I mentioned in yesterday's post that, in typical Gordon Brown style, any inheritance tax relief would be 'stingy, complex and extremely difficult and wasteful to administer'.

Stingy: check.
Complex: let's wait and see the paperwork claimants have to fill.
Extremely difficult and wasteful to administer: it shouldn't be too hard to administer this tax allowance, but I will wait until I see the paperwork before I give my conclusion. This, remember, is a Government that never does things the simple way.