Wednesday marks Alistair Darling's first Budget as Chancellor, and while speculation is rife over what he may have in store, we already have some details.
For a start, the basic rate of income tax is set to fall from 22 to 20 per cent in April, although this is being paid for by the scrapping of the 10 per cent tax band introduced by Gordon Brown. Most will benefit – apart from those on salaries of £10,000 to £14,000 a year who are not in receipt of tax credits – but there is a sting in the tail: less tax means less tax relief on pension contributions. "Those paying into private plans will have to pay 2 per cent more in premiums just to maintain current levels of saving," warns Shelagh Hamer, a tax specialist for NFU Mutual.
At a time when the Government seems desperate for people to fund their own retirements rather than relying on the state, these changes could hinder rather than help them, she suggests.
And as for the plan to increase the maximum amount that can be paid into an individual savings account (ISA) each year from £7,000 to £7,200, this has been described in many quarters as stingy, considering ISA thresholds have not risen since their inception in 1999.
Mr Darling has already made an impact. In his first pre-Budget report, he raised the inheritance tax (IHT) threshold for married couples and civil partners. Property passed between these people is already free of IHT, but from April, on the death of the remaining partner, that individual will be able to leave £600,000 – double today's figure. "This doesn't mean people should relax," says Ms Hamer. "With huge property price rises in the last few years, many couples have assets worth over £600,000. Get advice on your IHT liability so you can reduce any bill, regardless of these stunts."
And then there are the controversial plans for capital gains tax, with the current complex series of CGT allowances being replaced with a flat rate of 18 per cent. Some, such as buy-to-let investors, will win, but others are set to lose. Under the current regime, basic-rate taxpayers who have held shares in their companies for at least two years are only subject to a 5 per cent tax; this now rises to 18 per cent. Meanwhile, the liability of external shareholders will fall from 40 per cent to the new flat rate.
Investors who think they will lose out through the CGT reforms may be best off selling up, provided the Chancellor doesn't give into mounting pressure and go back on the reforms during his Budget speech.Reuse content