The gap just keeps getting wider! No, not the gap between rich and poor – some of today’s National Insurance and income tax allowance measures for high earners will help to close that (not to mention the bank payroll tax). And not the gap between private and private sector pensions – measures to cap public sector employer contributions should make them less outrageously advantageous (although pension campaigner Dr Ros Altmann points out that the cost of public sector pensions will still rise by 45 per cent next year, cap or no cap!).
I refer to the yawning gap between income tax and capital gains tax (CGT).
Income tax for high earners will hit 50 per cent from next April, and today we learned that National Insurance on earnings above £43,000 is going up to 2 per cent from April 2011, not 1.5 per cent as previously announced. That’s a marginal rate of 52 per cent in 18 months’ time (National Insurance is nothing but income tax in a fluffy disguise). But capital gains tax was left completely unchanged in the pre-Budget report, at a flat rate of 18 per cent – contrary to many predictions.
That’s a gap of 34 percentage points – the widest in living memory (well, my memory, at least).
But before you try the – theoretically legal – wrapping up of profits in a company structure to take earned income as a capital gain, bear in mind that the Transaction & Securities legislation is coming. Consultation on anti-avoidance measures closed on October 31, but don’t be lulled into thinking that the chancellor forgot about it in today’s statement.
Although he had time to announce measures today, HM Revenue & Customs says he’s waiting until Budget 2010. If there isn’t an election before he gets to deliver one…
Ten years ago, this was probably every computer geek’s dream: a super-fast broadband network.
Today however, people don’t just whine about the weather. “My internet is sooooooo slow!” probably follows closely behind “Oh *”£$*I£$ it’s raining” on the list of most common complaints.
The government’s decision to extend the 50p levy on all landlines in the UK in today’s pre-Budget report comes as no surprise.
It’s fiscal drag for all! I wish I could say this was a joke about this year’s taxmen and tarts party (December 17, venue tbc).
In fact, it’s the income tax nasty that the Chancellor failed to announce in the PBR. But it’s there, all the same, hidden in the paperwork on page 25.
Never mind Darling’s plan to freeze the higher-rate tax threshold from 2012 (two tax years away) nor even the new 0.5 percentage point increase in National Insurance (not until April 2011). No, the bad news is coming as soon as next April 2010: personal allowances and income tax thresholds are being frozen. Normally these increase in line with inflation (as measured by RPI), which is now negative.
What this “no change” means is that virtually anyone who gets a pay rise or who otherwise sees their income rise, will pay tax at their highest rate on this extra income (up to and including the new 50 per cent). And over time more individuals will be dragged (hence “fiscal drag”) into higher tax bands. People who don’t get pay rises or see any increase in income won’t be hit. But that’s not really much consolation.
The biggest news on pensions from today’s pre-Budget report is that the threshold above which higher rate tax relief on pension contributions will be scrapped has effectively been lowered – from £150,000 to £130,000.
This is because the government is now going include employer contributions in its definition of earnings – previously, this wasn’t on the menu. So, for example, someone earning £140,000 who thought they were safe – but whose employer pays 10 per cent of their income into a pension, taking their “gross” income up to £154,000 – won’t get the higher rate tax relief after all.
Speculation that the Government is planning some form of tax raid on bankers’ bonuses in tomorrow’s pre-Budget report is causing a stir. But the big question is exactly what form this tax could take?
Richard Mannion, national tax director at Smith and Williamson, thinks tomorrow’s Budget could take its lead from the Irish levy on income, which was introduced in their October 2008 Budget. This policy put a 1 per cent income levy on all earnings up to Euro100,000 and 2 per cent on anything above that.
At the time the policy was introduced the Irish government said it was temporary, linking it to the country’s struggling economy. But it looks as though that tax could be there to stay, with further fees on the way. Paddy Power, the betting firm, is currently offering bets at 9/2 in favour of a special tax on people who own trophy houses (worth Euro1m) or more being introduced in the December Irish Budget.
Could we be in line for the introduction of a similar levy on income tomorrow? It would be one way to get around the argument that a tax targeted only at bankers would be too discriminatory.