News Archive - October 2007
Pre-Budget Report 2007
25/10/2007Alistair Darling suggested some major changes in his first Pre-Budget report, some of which appeared to be rather hastily drafted and politically rather than economically motivated. (perish the thought!)
The suggested change to Inheritance Tax has been widely reported as a doubling of the tax-free allowance for married couples from the current level of £300,000 to £600,000. In actual fact, the proposal is just to allow up to 100% of any unused relief to be passed on to the surviving spouse. In some circumstances this would have the effect of doubling the tax-free allowance, but for many (especialy those who have already prepared an IHT-saving will) the change will have little or no effect. The proposals are more complex than they appear, and most would benefit from an IHT review with a specialist to see how the changes will affect them.
The suggested change to Capital Gains Tax (CGT) was supposedly made to crack down on a few City fat-cats who were exploiting the current regime to avoid huge amounts of tax on what was effectively their income. The proposal is to remove the current (extremely complex) system and replace it with a flat rate of 18% to be charged on any capital gains realised from 6/4/2008.The current system charges CGT at between 0% and 40% depending on how long the asset has been held and the taxpayer's other income in the tax year in question.
Every individual has a CGT allowance whcih can be used up each tax year (currently £9,200) so realised gains below this amount are not affected. For those with a large gain on an asset which they have not yet realised (for example, a buy-to-let property) it would be a good time to get advice on the potential CGT bill under the current regime and under the new proposals, especially if you are considering selling the property anyway. The proposals would also remove a relief currently enjoyed by business owners when selling their businesses. This is seen as yet another disincentive for entrepreneurs, and is being furiously contested. It may yet lead to an embarrassing climbdown by the Chancellor.