Our expert reveals who will benefit and who will pay from the new government's tax reforms
BY THE TELEGRAPH | MAY 12, 2010
Tax is the point at which politics condenses into something more substantial than hot air and hits you in the pocket. Early indications from the new coalition government suggest this summer's budget will contain the most dramatic tax changes seen in decades.
Millions of low-paid people will be freed from paying any income tax by the Conservative and Lib Dem coalition but high earners may lose pension taxbreaks and Tory plans to ease inheritance tax will be put on hold for this Parliament.
Investors and others with assets worth substantially more than they paid for them should consider taking profits now because Capital Gains Tax (CGT) will more than double from its current rate of 18 per cent.
One in five families who fail to allocate their Child Trust Fund vouchers when they are issued after the birth of a child should now do so without delay. These payments of between £250 and £500 per child could be withdrawn without notice, if Lib Dem manifesto proposals are put into effect.
However, married couples will receive additional tax reliefs under Conservative manifesto commitments which the Lib Dems have said they will not oppose – and the Tories will reverse planned increases in National Insurance Contributions. NICs are paid by employees and employers and so freezing the tax on jobs will avoid unnecessary increases in unemployment and shrinking pay packets.
The first casualty of the new coalition is the Conservative plan to raise the threshold for inheritance tax (IHT) from its current level of £325,000 per person to £1m. This will not now proceed in the current Parliament. However, it is understood that Tory plans to cut government spending by £6 billion this year will be put into effect.
While the horse-trading continues between the members of the new coalition , more details of how their fiscal strategies will be merged to form a coherent new tax policy are emerging.
The Lib Dems proposed the most dramatic tax policy of any party during the 2010 general election when they said the threshold for income tax should be increased from its current level of £6,475 to £10,000. That would free 3.6m people from having to pay any income tax and reduce government revenue by £17 billion.
Such a large tax cut seems improbable after Labour ran a deficit of £163 billion last year and now a less dramatic increase in personal thresholds seems likely. Even so, millions of low-paid people – including many pensioners on modest incomes – may be spared the need to pay any income tax. That will be a blessed relief after the dismal paperchase of means-tested tax credits imposed on the poor by Labour.
As a result, the first big surprise of the new Parliament will be that a coalition with the Lib Dems, which was much derided in prospect by many Conservatives, could prompt the biggest tax cut seen in decades. Less tax and more take-home pay, less government spending and more individual choice, should please many grass roots Tories who feared their own party's fiscal proposals were too timid.
