UK high-flyers should brace for bad news

May 14, 2010

— Neil Collins is a Reuters Breakingviews columnist. The opinions expressed are his own —

Election first, manifesto afterwards. While there may be a Conservative prime minister in Downing Street, quite a few among the millions who voted for David Cameron will have a shock when they see the price they are paying for his pact with the more left-leaning Liberal Democrats.

Nobody seriously expected the current 18 percent rate for capital gains tax to last. But the plan to raise it to “rates similar or close to those applied to income” could imply a top rate of 50 percent. The question now is whether it will apply from the date of the emergency budget, promised for 50 days hence, or only from next year.

The Conservatives’ crowd-pleasing pledge to raise the threshold for inheritance tax to a million pounds had already been downgraded to an aspiration. Now that’s gone, at least for this parliament. Meanwhile, “unacceptable bonuses” in banking are to be subjected to “robust action”.

High earners will also get thwacked by changes to income tax and National Insurance, a second income tax. Although there will be a “substantial increase” in the amount individuals can earn before they start paying tax, that will be focused on the lower paid. The give-away will be funded by increasing NI contributions from the better paid. The new effective top rate of tax will be 52 percent.

Tax credits for higher earners will also be reduced. Quite how the proposal will mesh with the impenetrable tangle of these credits that the last Labour government created is left for another day.

At least, those reaching 75 will no longer be obliged to buy an annuity with their pension pot, for which relief much thanks. The bankers are also spared the LibDems’ “mansion tax” on their Chelsea homes, but the proposal to tax planes rather than passengers cannot be good news for their private jets. It’s going to be even tougher at the top.

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