News Article - Guessing games

Sometime next month there will be a Budget. Sometime after the election, there will be another. Although dates have been floated in the press, we don’t know them for certain yet (or at least, not as I write this). What we do know for certain is that taxes will rise over the coming year.

Unless things change – and it is safest to assume that they won't - from 6 April 2010 there will be a new tax on incomes in excess of £150,000. Anyone with income between £100,000 and £112,950 will also lose some or all of their personal allowance – people with income in excess of £112,950 will lose the allowance completely.

Those affected will want to consider whether they can legitimately be taxed on more income in the current tax year and less next year. This could, for example, be achieved by taking private company dividends before rather than after 6 April, by taking a bonus before rather than after 6 April or (for the self employed) by deferring tax relievable expenditure until after 5 April. The self employed could also consider “disclaiming“ capital allowances on plant and equipment in 2009/10 thereby increasing the amount claimable in 2010/11. There are a number of other things that could be considered, but their appropriateness would depend on individual circumstances.

What else might happen? This is crystal ball gazing to an extent, but a number of commentators have suggested that VAT is unlikely to remain at 17.5%. Increasing VAT by 2.5% would yield around £1 billion a month in tax revenue and that must be an attractive figure to a Chancellor, of whatever political party. The capital gains tax (CGT) rate, at 18%, is also low and could be a target, though CGT raises relatively little in overall tax revenues. There are also frequent rumours about inheritance tax (IHT) and particularly the exemption for farmhouses. It is well known that HMRC finds it galling that some large farmhouses, particularly where the farm itself is small, escape IHT.

Guessing what an incoming government might do is one thing. Taking action based on the guess is another. In 1997 many tax advisers expected the incoming Labour Government to toughen IHT considerably. It didn’t happen. My advice is this: talk to your adviser about what might happen, but only act if you are willing to accept the risk that it doesn’t.

Paul Aplin OBE is a tax partner with A C Mole & Sons and a former chairman of the Institute of Chartered Accountants in England & Wales Tax Faculty. He can be contacted on 01823 624450, email paulaplin@acmole.co.uk. Bridgwater based tax partner Paul Kingdom can be contacted on 01278 446088, email paulkingdom@acmole.co.uk.