by Terry Reed
Having written an article before the election it seems only appropriate to make some comment after, though as I write this it is early days and nothing I say should be held against me!
Inheritance Tax
Before the election the Conservatives came under some criticism as their manifesto said they would put up the Nil Rate Band, that is the amount you can give away on death without a charge to Inheritance tax. They said they would increase this to £1 million. The cry came from many that the proposed new limit was too high but the Tories have always argued that assets should be passed on to families at death, and of course with house values being such a significant part of peoples estates there are many more people who would benefit from this than might be thought. However in these days of austerity and coalition it looks unlikely that we will see the inheritance tax starting point going up any time soon, in fact even if the Tories had had an outright victory the betting is they would not have seen this as a high priority change. So the current position prevails; each individual has a Nil Rate Band of £325,000, and if you are a widow and your deceased husband or wife did not use their allowance then you can double yours to £650,000. Labour froze this level until 2014/2015 but some would say the limits are already fairly generous so that many families pay no IHT anyway.
In return for a hold on Inheritance Tax it seems likely we won’t see the introduction of the ‘mansion tax’ of 1% a year on the value of properties worth more than £2 million proposed by the Lib Dems.
Income Tax
Those families on lower incomes can look forward to an extra £700 in their pockets as one of the main planks of the new coalition is that the Conservatives may well support the Lib Dem’s proposals to raise personal income tax allowances to £10,000. We don’t yet know when it will happen but it is something to look forward to. Consider this, though, that a £10,000 personal tax allowance costs around £12 billion in lost revenue. I have seen it suggested elsewhere that this is almost what a rise in VAT to 20% from its current level of 17.5% would raise. Neither the Conservatives nor the Lib Dems ruled out such an increase in their respective manifestos.
Pension Tax Relief
The abolition of higher rate tax relief on pension contributions – a Lib Dem Proposal which raises a very useful £5.5 billion – is a very real possibility and redresses what some see as an unfair situation where most of the tax relief goes to wealthier individuals. There is a problem with pensions, though, and that is in general terms we do not have enough put by, so anything that reduces their attractiveness further will not encourage people to save money for later years. A reduction in pension tax relief could be tempered with a promise to introduce more incentives for lower income families to save at a later date - such as an increase in Child Trust Fund vouchers paid to families on benefits or some entirely new saving scheme.
Capital Gains Tax
We might also see rises in Capital Gains Tax – if this reverts to being calculated at marginal rates then at the top end then would this be increased to 50%? Since the current level is only 18% some quick disposals of shares and other investment assets might turn out to be a good idea.
