Emergency Budget My Tips

Emergency Budget - My Tips

by Joanne Roberts, Director - May 2010

The Conservatives and the Liberal Democrats finally reached agreement on 11 May 2010 to form a coalition government.  The Emergency Budget will be on 22 June 2010.

Expected changes to be implemented for the UK economy are:

£10,000 Personal Allowances
Lower income families will get an extra £700 in their pockets, as one of the main Lib Dem proposals was to raise the personal income tax allowances to £10,000.  No date has been set for implementation.  Action Point for Clients: Potentially great news for lower income families and pensioners.

Reduced Personal Allowances for Over 65’s
Higher personal allowances could be cut back for example the higher personal allowances given to the over 65’s with income under around £22,000.  This is currently reduced by £1 for every £2 income above that threshold.  Action Point for Clients: Talk to us about 'non-income' producing investments such as Insurance Bonds to protect personal allowances.

VAT Rise to 20%
A £10,000 personal tax allowance costs around £12 billion to implement if there is no clawback elsewhere.  Interestingly, this is almost exactly 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.  Action Point for Clients: Make any large purchases that you plan, including new cars, before any tax rise.

Inheritance Tax
It looks as if the Inheritance Tax threshold increasing to £1 million as proposed by the Conservatives could be out of the window.  Likewise, 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 looks like a non-starter too.  Action Point for Clients: Talk to us about special investments that reduce inheritance tax instantly such as discounted gift trusts and inheritance loan trusts.

HIPs
Home Information Packs have been abolished, although it is an EU requirement to produce an Energy Efficiency Certificate.  Action Point for Readers: The abolition of HIPs will help to get the housing market moving again, this may be a better time to think about selling.

Stamp Duty
The increase in Stamp Duty to 5% on property valued at £1 million and above was due to be introduced in 2011, although this could be postponed.  The 1% increase was to fund the removal of Stamp Duty on homes between £125,000 and £250,000 for first time buyers.  Action Point for Clients: No real impact for most of us unless you are thinking of selling your home to a first time buyer, it may now be easier.

Capital Gains Tax
Depending on how soon public spending cuts are introduced we might also see tax rises in VAT and Capital Gains Tax, which is likely to rise from the current 18% closer to 40%.  I think this unlikely to affect business entrepreneurs relief but could hit personal capital holdings.  Action Point for Clients: If you are going to sell capital gains producing assets such as unit trusts, shares or second properties, you should take financial advice now before any tax change - even transferring assets into joint names or the names of children may help.  

Higher Rate Tax Relief
The abolition of higher rate tax relief on pension contributions – a Lib Dem Proposal which raises a very useful £5.5 billion.  This is a likely introduction.  Action Point for Clients: If you are a working, pay into pensions and are a higher rate tax payer, you may wish to invest more before any budget.

In a nutshell…
We can expect spending cuts rather than tax rises as the key focus for the newly formed coalition government as a first step.  

Reducing the deficit is imperative and with the two parties working together, even more than the £6 billion of proposed efficiency savings could be found.

Action Point for Readers: Take advice and action now before it is too late.