The new Conservative/Liberal Democrat coalition government is likely to hold a second 2010 budget in July to deal with the urgent economic issues facing the country, warns law firm Steele Raymond LLP.
Top of the list for discussion will be ways to increase tax receipts.
VAT is widely expected to increase to 20%, possibly from January 2011 and the Conservatives promise to increase the nil rate band for inheritance tax purposes to £1m has been pushed onto the back burner as a low priority policy issue.
The government has (but without being specific) indicated an increase in the rate of Capital Gains Tax (CGT).With the difference between the highest rate of income tax being 40% or 50% for the highest earners and CGT being a flat rate of 18% for all, there is talk of reverting the rate of CGT to the ‘top slice’ in the tax calculation – ie. increasing the rate to either 40% or 50%.
It may be however that the new rate will only apply to ‘non-business assets’ and exemptions or relief’s for business activities will remain in some form or other. This means shares, second homes and buy-to-let property will be the main targets of the tax increase.It is possible, with planning, to increase the base cost of assets to their current market value paying CGT at the 18% rate so that only further gains over and above the current market value may be taxable at higher rates at a future date.A word of caution however is that it is not yet clear whether any change will be implemented at the start of the next tax year, on the day of the budget or perhaps even retrospectively back to 6 April.
People with investment properties, family companies or investment assets could benefit from planning.Kurt Lee, a Chartered Tax Adviser and Solicitor with Steele Raymond LLP says “For many individuals, it may be possible and beneficial to uplift the value of their assets taking the opportunity to pay tax on any gain at 18%, rather than delaying to a later date when the full gain could be taxed at 40% or 50%.The important thing to note is that everyone’s situation is different and tailored advice from a Chartered Tax Adviser is essential.”
Paul Causton and Kurt Lee who make up the private wealth management team at Steele Raymond LLP are both Chartered Tax Advisors.
