| Under the historic deal reached between the Conservatives and the Liberal Democrats both parties have had to compromise on their manifesto promises. Below we set out the widely reported tax implications of the deal and suggests opportunities for tax savings.
This article was written before the coalition agreement was released and all proposed changes are subject to the normal scrutiny before parliament.
The emergency Budget is taking place on Tuesday 22 June 2010 so you may need to act fast.
Income Tax
From April 2011 there will be a ‘substantial’ increase to the personal tax allowance (currently £6,475). The long term goal is for a £10,000 personal allowance.
The Conservatives still plan to introduce a married couples/civil partners allowance. Enabling basic rate taxpayers to transfer up to £750 of their personal allowance to their spouse/civil partner. The Lib Dems have said they will abstain from any vote so it should still be passed.
Opportunity
Closer to the April 2011 deadline there may be opportunities to defer income or transfer income between you and your spouse. This will ensure you benefit from the full tax free allowances available.
National Insurance
The planned 1% rise in National Insurance Contributions (NIC) from April 2011 will now only be on employees and not employers.
Opportunity
This increased tax burden will negatively affect employees’ pockets so as an employer you should ensure you are offering as many tax effective benefits as possible. The options include mobile phones, low emission cars, car park spaces and childcare vouchers.
Capital Gains Tax
It has been agreed to increase Capital Gains Tax (CGT) although it is not yet clear whether or not this will include business assets. It has been suggested that the increase will be effective from April 2011. However the increase could come as early as next month’s emergency Budget and the rate could go up as high as income tax rates ie 20% / 40% / 50%. It’s unlikely that the recent doubling of Entrepreneurs’ Relief to £2m will be reversed, so the sale of businesses by qualifying individuals will still attract relief to some extent but the excess above this could be heavily taxed.
Opportunity
If you are considering an imminent sale, for tax reasons it may be worth selling within the six weeks to be sure of benefiting from the current CGT rates.
Alternatively you may be pretty confident you will sell your business or a property (which is not your home) within the next couple of years, but not within the next month or so. If this is the case we can help you plan to try and capture current CGT rates on the future sale.
Inheritance tax
The Conservatives’ planned hike in the Inheritance Tax (IHT) threshold from £325,000 to £1m will now not be brought in during this parliament. Given the new five year fixed term parliaments this means that this won’t happen until at least May 2015.
Opportunity
If your estate is (or will be) worth more than £325,000 (or £650,000 if you are married) we have planning ideas to help reduce your IHT burden for you and your family.
VAT
There has still been no announcement on VAT, however to reduce the budget deficit it seems likely that it will be increased to 20% in the near future.
Opportunity
There is not much that can be done to offset the expected rise and for practical reasons any rise could not have immediate effect.
Contact us
If you would like more details about how you can save tax please speak to your usual tax contact or click below to make an online enquiry.
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