Clegg and Cameron deal on tax
As is reported in the press this morning the Lib Dems seem to have the upper hand when it comes to securing their tax aims.
Look out for Budget # 2, but these are some of the points I’ve culled from the papers today:
- The Lib-Dem’s headline reform of increasing the lower tax threshold to £10k will be introduced.
- The rate of capital gains tax (CGT) on the disposal of non-business assets will increase. We will therefore have two rates. It remains to be seen how this will operate in practice but we are likely to see the rates of tax for income and capital being matched – with the top rate of CGT at 40 or 50 per cent. People thinking of making taxable disposals (in particular making gifts and settling trusts) should seriously consider accelerating these.
- There will be a lower rate of CGT, or an exemption (a la business assets taper or entreprenuers’ relief) for entrepreneurial assets. This is unlikely to cover shares other than in your own business (which could mean 5% ownership – but this remains to be seen).
- A reversal of the increase in the threshold for national insurance contributions made by employees.
- The tax break for married couples will go ahead, but it is not likely to be big enough to cover the cost of the engagement ring (or even the mangagement ring). The Lib-Dems have not agreed to support this but they’ve agreed not to block it.
- Plans to increase the inheritance tax threshold to £1m are deferred indefinately.
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It would seem too that the increase in personal allowances for income tax will benefit many – but may adversely affect those on incomes over £100k and this should be born in mind on, for example, divorce settlements and investment considerations.
For higher earners the income tax allowance is eroded on a £1 for £2 of income basis. Unless the Treasury do something about this, then income falling between £100k and £120k will effectively be taxed at 60% once these changes are brought in.I think this comment should be removed
Another consequence of this is going to be that people will need to rethink how they own investment properties. Currently there is a strong incentive to direct ownership or ownership via an LLP (to protect against liability) ince this gives rise to 18% CGT on gains. Going forward companies might start to look more attractive since gains will be taxed at a lower rate and profits can be rolled up in the company or reinvested.
Interesting times…..I think this comment should be removed
Another thing to bear in mind is that is looking increasingly likley that VAT will increase to 20% in the new Budget (as was reported on the bbc website today and has been on everyone’s minds for several months now).
This means that acquisitions might need to be accelerated to avoid extra SDLT, the cashflow implications of an additional 2.5% VATI think this comment should be removed
Whilst agreeing that home ownership has become out of the reach of virtually all young people, apart from those fortunate enough to receive financial assistance from relatives, I fail to see why first time buyers are to get stamp duty assistance whereas others who may be the same age, but have strived hard to invest in their own home, do not.
Few first time buyers can afford homes costing between £125,000 and £250,000 so the concessions made by Labour are, for most young people, virtually meaningless. Were ALL buyers of property costing upto £250,000 be relieved of stamp duty then many who have already purchased small homes might be able to move on to something a little better, releasing more homes onto the market for first time buyers.
When the media announces ‘recovery in the housing market’ I cringe. The only ones who benefit from such ‘recovery’ are those who own multiple homes and the banks who then can charge interest for mortgages for artificially inflated property prices.
Sheila GreethamI think this comment should be removed
Sheila
I think you’ve hit the nail on the head there. It is of use to some people but ultimately it was much more a case of grabbing the headlines and (the hope was) the votes.
Let’s face it – the Treasury was never going make a truly meaningful concession on tax – they simply can’t afford it. I have to say though, that our residential property team have encountered a few people who will benefit from this concession.
The Stamp Office are about to publish a list of categories of people who will be able to benefit from the stamp duty exemption. I’ve seen a copy but am unable to publicise this yet. When it is public we’ll all have a better idea of who will be able to benefit. However, current home owners are definately off the list.
ShimonI think this comment should be removed