How will the budget play out?
-Julia Whittle is principal and head of international, Punter Southall Financial Management. The opinions expressed are her own. She will participate in a Reuters Budget live blog at noon GMT on Wednesday, March 24, 2010. Please tune in and join the discussion. –
We would certainly expect Chancellor Alistair Darling to use this budget to make a strong statement ahead of the general election to try to repair public confidence, but this may be difficult without making the situation worse.
There has been huge speculation that the Chancellor will increase the rate of capital gains tax, from 18 percent to something much closer to the new 50 percent top rate of income tax but this is unlikely to yield huge revenues and would add to the hit on high earners.
Marginal tax rate increases would probably be a bridge too far but some tinkering around the edges is likely– for example tax disclosure arrangements could well be extended to cover “income to capital” schemes and maybe extending HMRC powers in relation to offshore accounts.
Rumours have been rife about tax free cash being taken away from pension scheme benefits. However, this is unlikely due to the hugely damaging effects of retrospective taxation.
Inheritance tax changes are unlikely for this budget although means testing for child benefits could be slipped through.
Venture Capital Trust/Enterprise Investment Scheme relief could be targeted but certainly wouldn’t send out the right message for a Chancellor supporting economic recovery.
Finally, National Insurance was hit last time so Darling probably won’t try another rise quite so soon, though VAT is always a target.
Don’t forget the pre-announced tax increases and changes:
• The 50 percent tax rate commences on 6 April;
• Personal allowances are withdrawn for those with income above 100,000 pounds;
• Fuel duty increases by 1p per litre above indexation on 1 April;
• Landfill tax rises by 8 pounds per tonne;
• The furnished holiday letting rules are abolished from 6 April, so that owners will no longer be able to set losses against other income;
• Fuel benefit increases, for those who receive fuel for personal motoring. For vans, there’s a 10 percent increase to 550 pounds and for cars the multiplier rises from 16,900 pounds to 18,000 pounds;
• The inheritance tax threshold is frozen, at 325,000 pounds instead of increasing as originally planned;
• The Community Infrastructure levy commences on 6 April 2010. It’s a mechanism that allows local authorities to levy charges on new property developments, to finance local infrastructure.