A Mixing of oil and water : tax in the new government
The Conservative / Liberal Pact, they say, will bring in a new era of politics.
Here at BPR we are not too sure what we think to that statement, but one thing is for sure, we have a mixing of oil and water when it comes to tax policy ideals, which, when coupled with a need to cut a budget deficit in a reducing tax base could lead to tax rises and uncertainty in long term tax planning:
Here is what has been announced so far:
Capital Gains Tax:
There will be changes to Capital Gains Tax. This could mean that the rate of CGT will increase from 18% to 40% or even 50%. However it has been stated that generous exemptions for entrepreneurial business activities will remain.
What is not clear is what will be classed as “entrepreneurial”, or “Business Asset”. It’s likely to include trading businesses and shares in similar companies but whether other assets will qualify is not known.
We also do not know how generous the exemptions will be. Will they be as good as the existing Entrepreneurs’ Relief which charges 10% on the first £2 million of qualifying gains? That remains to be seen.
For non business assets it is likely that the rate of CGT will rise. It is also possible that the principal private residence relief rules will be changed (which exempts the gain on your main home, which is unlikely to change) to increase CGT on gains made on ‘second homes’.
Income tax and National Insurance:
From April 2011, there will be a “substantial increase” in the tax-free allowance for earnings and over the long-term, to increase the tax-free allowance on earnings to £10,000 – a key Liberal Democrat policy commitment.
The planned increase in National Insurance of 1% will go ahead, except it is to apply to employees only and the employers NIC element will not be implemented.
Other changes:
The Conservatives were planning to reduce corporation tax from 28% to 25%. This has not been ruled out by the Con Lib pact, and so may well be implemented.
There have been other changes announced however the major changes will be announced in the next Budget which will occur “within the next 50 days”; that is before the end of June.
Additionally we are currently awaiting the outcome of a comprehensive spending review, which may also give further clues regarding tax changes.
What to do?
Tax planning is very difficult when there is uncertainty about how tax will develop over the forthcoming months.
However anyone contemplating a sale of any asset in the coming months ought to consider carefully whether triggering a gain early would benefit them. This could secure CGT at current rates.
If you are concerned about how the changes may affect you and want more information, please call 0113 257 4506 or e-mail m.andrews@bpr.co.uk for a free discussion or meeting.