More pain for the wealthy was the order of Budget day. A two-year stamp duty holiday for first-time buyers on property under £250,000 will be funded by a rise in duty on sales above £1m from 4 to 5 per cent from 2011 in a tax move that the Conservatives have pledged not to oppose if they win the next election.
This means someone looking to buy a home worth £1m or more will have to find a minimum £50,000 to pay the stamp duty. Those who wish to pass on their homes and goods to loved ones when they die face a four-year freeze in the amount that can be left free of inheritance tax. The present individual IHT threshold stands at £325,000 or £650,000 for married couples and civil partners.
The Chancellor also confirmed some already-announced measures which will cost the wealthy dear. Income tax personal allowances will be phased out after an individual earns more than £100,000, and disappears altogether once incomes reach £112,950. In addition, the new top rate of tax of 50 per cent on earnings over £150,000 will go ahead as will the cutting of pension's tax relief for the same group.
Those with complex tax affairs may be alarmed at yet another pledge from the Chancellor to crack down on tax avoidance with the aim of raising an extra £500m. "This is likely to involve closing schemes that disguise income as capital gains, which is taxed at a lower rate," said Chas Roy Chowdhury, head of tax at the Association of Chartered Certified Accountants, said. "In recent times, the Government thinks it is getting to grips with this, hence the plan to save £500m."
As taxes increase, Malcolm Cuthbert, the chairman of stock broking firm Killick & Co, warned that the wealthy could move abroad in a 1970s-style brain and talent drain. "What will be the last tax straw which will break the camel's back for higher earners? As things stand, the welcome mat has been removed because they now face higher stamp duty at 5 per cent on property purchases over £1m, swingeing higher income taxes [50 per cent] and increased national insurance."
But Mr Cuthbert added that there was some good news for the wealthy. "The doubling of relief on capital gains tax to 10 per cent of the first £2m gain for entrepreneurs is a welcome incentive to those who take risks to generate wealth and, indeed, jobs."
But it seems that the one-off tax on bankers' bonuses announced in the Pre-Budget Report has boosted government coffers without deterring either the payment of incentives or the activities of the banks. The Chancellor revealed that the bank bonus tax has so far gathered in £2bn, twice what was predicted at the time of its introduction.
But the tax pain may not be over for the wealthy because after the election the Government wants to cut debt. "There are still lots of things that can be done," Mr Roy Chowdhury said. "Ed Balls, who may be the next Chancellor if Labour wins, seems to be keen that the new 50 per cent top rate should not just apply to those on £150,000 but should kick-in at £100,000.
"I wouldn't be surprised if further moves on removing tax relief on high earners' pensions and income tax personal allowances followed. Labour seems to like the idea that the top 2 per cent or so should pay more but they alone can't close the borrowing black hole."Reuse content