Lambert Chapman LLP Pre-Budget Report Predictions

The Chancellors Pre-Budget Report is set for Wednesday 9th December 2009. We asked our staff and partners for their thoughts as to what this last pre-budget report before the general election would contain. As usual we received a wide range of responses which are précised below. These came from Chris Harman, Gill Philpott and the tax team, Nigel Whittle, Mike Carabine, Lisa Potter and Richard Thomson. If you would like to see the individual contributions please visit our blog site which will also allow you to add your own thoughts, fears or wishes as a comment to the article.

A summary of the predictions are as follows:

   

Income Tax

It was felt that the 50% rate would be introduced and possibly added to, either in the form of a higher 60% rate for those with income above £250,000 or by reducing the £150,000 starting point.

For environmental issues, a benefit in kind is to be introduced for work related car park spaces. A suggestion was made that this might be held over or avoided if the recipient of the space was to transport a colleague or passenger to their work place.

National Insurance

There were suggestions that national insurance on high earners would be increased by widening the upper band and possibly increasing the rate charged. Another suggestion was that a punitive national insurance rate might be introduced to penalise “fat cat” city bonuses which would meet with favour from the electorate.

Income Shifting

There has been much talk of introducing legislation to prevent husbands and wives transferring income between them to take advantage of two basic rate bands, rather than restricting it to the person whose skills deserved the salary. This was previously deferred. We have mixed messages here with some suggesting that there will be further deferral on the introduction of these rules due to difficulties in drafting the legislation, whilst others feel that they will be introduced in an effort to raise revenue.

Corporate Taxes

We have a suggestion that the tax rate for small companies will rise to 22%, as this was meant to happen on 1st April 2009. However, this did not find favour with others who felt that rates should either be maintained or fall to offer assistance to small businesses suffering difficulties. It was also felt that the large rate of 28% might fall further in an attempt to attract more business to the United Kingdom, in a lower rate environment thus increasing employment.

Capital Taxes

The majority felt that the current 18% rate would rise, certainly to 25% but possibly to 30% in an effort to bring this more in line with higher rate taxes. There was a further suggestion that the exemption to elect for a second home to become your principal private residence (PPR) would be abolished and possibly the sale of your principal private residence only to be exempt to a fixed level of gain and any sum above that tax at a special PPR capital gains tax rate.

Inheritance Tax

Revisions were suggested perhaps to assist “middle England”. The nil rate band might jump to £750,000 but with a 50% band on a estates over £5 million being introduced. There was also thought that the Business Property Relief and Agricultural Property Relief would be capped.

Stamp Duty

To assist the property market the retention of the £175,000 stamp duty land tax exemption was suggested. Another suggestion proposed an increase of this to £200,000 with effect from 1st December 2009, in an effort to bring the market back to life in the Spring.

Value Added Tax

Many had thoughts on the proposed rate change where the standard rate reverts to 17.5% from 1st January 2010. Some felt that this would be delayed, possibly until 30th June so that the election takes place before any changes have come to bear. However, all who mentioned this felt that the rate would increase to more than 17.5%, certainly to 18% and possibly to 20%. Another suggestion was that the reduced rate of 5% for domestic heating would be doubled to 10%.

Another VAT suggestion saw a reduction in the range of supplies qualifying for zero rating using the excuse of “EC legislation”. The effect of this would be to increase prices and bring more money into treasury coffers.

Wealth Taxes

These are popular across Europe and a number of suggestions included their introduction into the UK statute book. One suggestion was 0.25% on assets anywhere in the world owned by a UK domiciled resident where their open market value at 31st December each year exceeded £5 million.

Tax Schemes

Colin Timms, the financial secretary to the treasury, recently said, “it is right that tax payers pay their fair share of tax. However, there are a minority who continue to seek ways to avoid paying their share. This is unacceptable. It is unfair on the majority of tax payers, undermines physical sustainability, and reduces funding for public services. The government will not tolerate tax avoidance schemes or tax evasion in any form and will act promptly to tackle both of these issues”. As a result of statements such as these many believe that there will be a clampdown on a wide range of tax planning schemes in an effort to bring more income onto the tax radar. The effect of this would be to raise large amounts of higher rate tax on income and bring capital transactions into the tax net. This could have a substantial benefit to this and future and governments who need to raise money quickly to repay debt.

Finally, many felt that the Chancellor would have an eye on the forthcoming election but that the difficult financial position that his government finds itself in would provide him with limited scope to offer vote catching benefits for next May.

Having read these predictions you may wish to get in touch with your local Lambert Chapman LLP contact with a view to understanding how this might affect you as an individual. You may also wish to visit the blog site to identify the authors and discuss specific issue with them or add your own comments. Whichever way we would be delighted to hear from you.

Date:13 November 2009

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