PLANNING AHEAD FOR HIGHER TAXES?  WORRIED ABOUT THE PRE-BUDGET REPORT?  THESE ARE ALL NATURAL CONCERNS IF YOU RUN YOUR OWN BUSINESS OF ARE A HIGHER RATE TAXPAYER!

As you are probably aware the Chancellor is due to stand up and give us more bad news on 9^th December.  9th December is (I think!) his latest ever date for the PBR and I can't help but think that the delay means bad news is coming. 

Still, I remember when we had just one “Budget” each year and it was actually quite an exciting event in the tax world (yes, I know that might be rather sad).  My recollection was the PBR was supposed to separate spending and taxation issues or some such nonsense.  From 1998 to 2007 the Budget and PBR speeches were quite dull - same old thing with Mr Brown, telling us that "over the cycle" his books would balance and that he was within the golden rule etc whilst actually spending more than forecast last time.

Since Mr Darling became Chancellor I have to confess that the Budget and PBR speeches have become more interesting  - mainly because economic events have required Mr Darling to rethink so many areas of tax!  I am excited by the idea we might get Mr Osborne soon - not because I am a Tory but simply because there'll be more changes - and change is good for people in my profession......if hardly for business and the taxpayer.

I’m not sure why Mr Darling picked the 9th as a “good day for bad news” but maybe he is hoping that the papers will be full of yuletide joy.  Alternatively, he has simply postponed it in the hope that we’ll be out of recession by next Wednesday or that the headlines will be full of success stories about Copenhagen and CO2 reduction.  Or maybe he’s planning a surprise “green Budget” to support the process across the water and to deflect from our apparent national insolvency.

In any case, the speculation on the PBR is

1.      that VAT may stay at 15% for a bit longer then rise to 18% or more later-  or may just rise to a higher rate than 17.5% at 31/12/09.!!  Don't bank on 17.5% either way.

2.      that the 18% capital gains tax rate will be replaced with a higher one – maybe 25% - 30% but that a lower effective rates for business assets (trading businesses) may remain available.

3.      that we’ll have rhubarb about fiscal responsibility – quite hypocritical surely?  Am I unfair.  But what happened to all that froth in 1997 about servicing the national debt being the legacy of Tory failure? 

4.      that the 50% rate may start at a lower earning point, or the personal allowance restriction may similarly start lower.

5.      that you won’t be able to “flip” your main residence to save capital gains tax (via written elections) any more.

6.   that we'll get more National Insurance...really.

7.      we will get a “keep spending until the election” speech full of references to “investment” against "Tory Cuts" as a polite way of saying “spend spend spend” and please "vote vote vote".

I hear rumours of people selling assets and cashing in their gains at 18% tax this week.... and they may well be right to do this – like any rumour, you never know until after the event.  If you’re about to sell, a slight acceleration might not be madness but I am never convinced about “the tax horse leading the cart”.

I’d certainly make any main residence elections or variations if you have more than one home available to you and want to maximise future tax relief.

I think most clients are aware from last years nightmares what is to be done to move to a new VAT rate but I’d hold off on the systems change until 9^th December just in case we get a surprise.

One thing you should all watch for is that paper VAT returns are being banned next April -

http://www.hmrc.gov.uk/vat/vat-online/moving.htm

If you need help let me know.

There’s a few other ideas I could float towards the Treasury – for raising some taxes and which probably won’t “make the cut” – (they're not recommendations....!)

1. Dump 50% at 150k / loss of allowances at 100k - 50% is a bad rate of tax to ask for - more than any other developed country I fear....try a 45% rate if you must?
2. Introduce a lifetime inheritance tax charge on family gifts – that would be particularly nasty for people passing assets on during their life.
3. Change the main residence tax relief on gains to limit its application and the ability to have more than one home. (our MPs ruined that planning trick!).
4. An additional higher rate of Stamp Duty of 5% on the most expensive homes (a “mansion tax” by another route).

In terms of planning ahead, a number of our clients will be affected by the proposals for the 50% income tax rate and the loss of personal allowances for higher earners (100k income+).  We are running a seminar on the evening of 13^th January 2010 to provide ideas for “damage limitation” and to also discuss how pension tax relief works in light of recent changes.  If you’re interested, email Margaret.mackenzie@milnecraig.co.uk and she’ll contact you with more details.

In any case, 1230pm on 9^th December – Chancellor Darling’s PBR – maybe his last (maybe not – I remain convinced Labour can win an election! - people "up north" don’t seem to like Cameron or Osborne). 

Please remember, if we have a change of Government I fully anticipate applying an equally scathing view to their tax policies!  The views above are mine and not necessarily those of our firm, or my fellow directors.   You should always seek personal tax advice and not rely on this, or other website articles for your planning.

Donald Parbrook

Tax Director