Recently in Tax rates 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.
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.
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.
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:
- 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.
- 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.
- 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.
- 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.
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.
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.
The Chancellor will deliver the Pre-Budget Report next Tuesday (9 October 2007). Speculation is rife that there is a General Election on the cards. If so, the Report will be all the more interesting for what it leaves out, rather than what it says.
Gordon Brown may have handed over nominal control of the Treasury to Alistair Darling, the Chancellor, but only the very naive would assume that the latter has any real control over what goes into the Pre-Budget Report.
- 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.
