Pre budget thoughts

In the last of their pre-Budget alerts RSM Tenon cover personal taxes:

The top rate of tax
The 50% rate has now been in operation for a few months – the big question is how long it will stay. The conservatives are instinctively against high taxes but there is nothing in the coalition agreement to suggest that reducing taxes at the top end of the spectrum is on the agenda so we can only assume that the 50% rate will be with us for some time

Personal allowances
The long-term aim is to increase the basic personal allowance to £10,000. However this will not happen overnight and we suspect that it will take the whole of the parliament to get to the full £10,000.

We also anticipate that rate bands will be adjusted so that higher-rate taxpayers don’t receive any benefit from the increase. This is bound to create an additional layer of complexity – something which is completely contrary to one of the government’s other policy goals!

Married couples’ allowance
The government is to press ahead with its proposal for a transferable allowance between husband and wife. It is not clear what this might actually involve but it could be quite attractive for low income couples where only one spouse is working.

Taxation of non-domiciliaries
This is to be reviewed. This is probably a good thing, as the current system is almost unworkable in practice, but again the fear is the end result will be to replace one complex system with something twice as complex.

Furnished holiday lettings
The previous government was on the verge of abolishing the special regime that gives a favourable tax treatment to furnished holiday lettings but the proposal was dropped at the last minute in the run up to the election. It looks as if some form of favourable regime will continue, although the details are not yet clear.

VAT
We have already speculated that VAT will rise. Businesses are likely to pass this increase onto consumers further increasing the personal tax burden. Whether a VAT increase changes our spending habits remains to be seen – visit our website and complete our poll

Tip of the week
There is nothing specific to be done before Budget day as any changes in rates and allowances will only take effect from next April. But there is still plenty of planning which can be done round the 50% rate of tax. If you didn’t get round to it before the beginning of the tax year all is not lost. We can talk you through a wide range of options.