Make hay while the sun shines
Is now the time to cash in on more favourable tax rates? Associate and tax planning lawyer Katherine Neal outlines the details.
To much fanfare - and some cries of foul from entrepreneurs! - Alistair Darling last year unveiled the new flat rate of Capital Gains Tax of 18% and Entrepreneurs' Relief of £1m. At the time, the news was greeted with a mixed reaction, but since its introduction many advisers have made the most of the disparity between Capital Gains Tax at 18% and Income Tax at the higher rate at 40%. Rumour has it, though, that this bonanza will come to an end when Mr Darling delivers his pre budget report (PBR) shortly, which in recent years has come to resemble a second Budget speech.
These changes come hot on the heels of the increase of the higher rate of Income Tax to 50% (on income over £150,000 per year) from 40% effective from 6th April 2010, a year earlier than originally advised, as set out in the 2009 Budget and significant and painful changes to tax relief on pension contributions, as well as the restriction of the personal allowance for income earners between £100,000 and £150,000 per year. The personal allowance will be eliminated at an income level of £112,950 per year if the personal allowance remains at the 2009/10 level of £6,475.
We are now well used to Government using the PBR to introduce new, and sometimes retrospective, legislation and in the current economic crisis it is unlikely that we will get away with anything different this year, 2010 being election year or not. The Government has to address the issue of Public Sector Borrowing Requirement - and taxation is the obvious target.
This week the Association of Chartered Certified Accountants set the rumour mill turning with its prediction that CGT rates could be raised from 18% to 20% - or even 30% - giving a massive boost to the Government coffers but a blow to tax payers.
The PBR buzz around the industry is that Agricultural Property Relief and Business Property Relief for Inheritance Tax purposes may also be hit with the introduction of £1m lifetime limits and a hike in the top rate of Stamp Duty Land Tax from 4% to 5% is not beyond the realms of possibility.
The Government has already announced the repeal of allowances in respect of furnished holiday lets and the reversion of VAT back to 17.5% from 31st December 2009, so further tax increases are pretty much guaranteed.
All in all the future looks dismal for tax payers so perhaps now is the time to put some planning in place to make the most of the preferential rates against the backdrop of a rising FTSE. Speak to your advisers and be glued to the internet when the pre-budget report is published to see if any of these predictions come true.
If you would like advice on wealth management and tax planning, would like to make a Will or have any other personal query, please contact Katherine Neal on katherine.neal@harveyingram.com or call 0116 257 4459.