Wealthy individuals may have less than two weeks to put plans in
place to reduce the tax impact of the Chancellor’s pre-election Budget
warns PKF Accountants & business advisers.
In his speech on the economy on March 10, Prime Minister Gordon
Brown suggested that it will be the better off who have pay to get the
country out of recession, and he effectively ruled out spending cuts or
tax rises that would hit those on low and middle incomes.
Matt Coward, Director of Private Client Tax Services at PKF says:
“Although Gordon Brown and (Chancellor of the Exchequer) Alistair
Darling may not always see eye to eye on tax issues, I expect the
Chancellor to stick to the traditional Labour Party line with his
Budget announcements – financial ‘fairness’ is likely to mean tax rises
for the wealthy.”
Coward warns that there could be bad news on both capital gains tax
(CGT) and inheritance tax (IHT) as well as yet more moves to restrict
tax relief on pension contributions.
“With the 50% rate of income tax due to take effect from April
6, many are expecting the current rate of CGT – just 18% – to rise to
counter tax avoidance by switching investments to generate capital
gains instead of income," Coward noted. "A CGT rate as high as 25% or
40% could be announced so realising capital gains before the Budget
could be a good idea. However, if the Chancellor takes a more subtle
approach, he might phase out the annual CGT exemption for individuals
on high incomes or introduce rules to tax gains made over a short
period as income. This would make planning options much more complex
and bringing forward assets sales could just bring forward your tax
bill.”
Widespread negative comment on the Government’s moves to restrict
tax relief on pension contributions may spark changes, according to PKF
“The transitional rules up to April 6, 2011 are bad enough, but the
proposals for 2011/12 and later years are so complex that people will
just turn away from pensions," Coward warns. "However, any move to
simplify these rules is only likely to cut tax relief more for those
who can afford to make large contributions up to the current GBP245,000
annual allowance.”
The Chancellor has already frozen the IHT nil rate band for 2010/11
at GBP325,000 and PKF says that more tax raising measures may emerge on
March 24.
“Relatively simple rule changes could enable the Chancellor to raise
more revenue in the future," Coward observed. "Tightening the rules on
gifts could bring more funds into the IHT net and higher rates of tax
on larger estates, perhaps a 50% rate on estates of over £5m,
could raise significant amounts"
“The long term risk is that, given the need to raise revenue to cut
the deficit, any future government may find it hard to reverse such
changes once they have been put in place," Coward added, concluding:
"Acting now before any such changes take effect may not always be
straightforward, but could save you and your family a lot of tax in the
long term.”
LAWANDTAX-NEWS.COM
