Taxing Times For The UK


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A new tax year has just begun in the UK, bringing with it a new top rate of income tax. What further tax rises can Britons expect over the next few years? The general election in t

A new tax year has just begun in the UK, bringing with it a new top rate of income tax. What further tax rises can Britons expect over the next few years?

The general election in the UK is set for 6th May and with UK election fever underway, speculation surrounding potential tax rises abounds as arguments about taxation form the fire of the three main political parties? manifestos.

Some tax rises have already been announced in the UK Budget and Pre-Budget Report, but none of the parties is keen to announce any more definite tax increases prior to the election. However whoever is in power come 7th May will need to find ways to increase tax revenue, plus cut spending, to pay for the huge Treasury debt of currently around ?167 billion as well as for the crippling costs of healthcare for the elderly.

Income tax

Measures from the previous Budget and Pre-Budget Report and confirmed in the 2010/11 Budget which came into effect on 6th April include an unprecedented 50% tax rate for those earning more than ?150,000 a year. Those with an income of over ?100,000 will find their personal allowance tapered down resulting in some higher earners paying an effective income tax rate of 60%. Higher-rate pension tax relief for those earning over ?130,000 was also previously restricted.

Personal allowances

Described in the press as a ?classic stealth tax,? personal tax allowances have been frozen at the 2009/10 level of ?6,745 as well as the taxable bands for 20% and 40% taxpayers. The threshold at which the 40% rate is levied remains on hold at ?37,400.

Stamp duty

The stamp duty ?holiday? for first time buyers was doubled to ?250,000 for two years, but to fund it the duty was increased permanently by 4% to 5% on properties valued at over ?1 million, at an estimated cost to buyers of ?10,000 per property.

Inheritance tax

The inheritance tax threshold which was due to rise to ?350,000 is frozen at ?325,000 (?650,000 for married couples and civil partners) for the next four years to help pay for social care for the elderly. This will cost families an extra ?37,000 for inheritance tax and an estimated 650,000 estates will be liable for the tax. The Conservatives want to raise the threshold to ?1 million per estate.

Tax evaders ?named and shamed?

From 1st April 2010, taxpayers who deliberately evade UK tax of more than ?25,000 will have their details made public on HM Revenue & Customs? (HMRC) website. Anyone who feels that they have made a mistake but not deliberately should contact HMRC to avoid being included.

Penalty increase for tax evasion

The penalty for ?deliberate and concealed evasion? involving offshore tax havens which do not have a tax exchange agreement with the UK will be doubled from 100% to 200% from 1st April 2011.

If the tax evasion involves jurisdictions that exchange tax information with the UK only on request the penalty will be 150%. This could include jurisdictions such as the Isle of Man, Jersey, Guernsey and Switzerland.

For tax evasion involving jurisdictions which share tax information with the UK the maximum penalty remains at 100%.

As the increase in penalties does not take effect until next year, concerned taxpayers should seek expert tax advice and voluntarily put their tax affairs in order to avoid the more severe penalties.

Although it is likely that the crackdown on tax evasion will continue whichever political party wins the general election, this measure could well change and the penalties made even more punitive.

What can happen next?

The Labour Government has announced a 1p increase in National Insurance Contributions (NIC) for those earning over ?20,000 to be effective from next April. In a fierce election campaign undertaking the Conservative party has said it would reverse this decision, pledging a cut of ?6 billion in Government waste to fuel the bill. Overall, the Conservatives maintain they can cut ?12 billion in Government waste over the next year.

Labour believes that the Tory commitment to reverse the NIC rate rise is costed for only one year and would create a ?30 billion hole over the five-year term of a parliament which can only be plugged with a rise in VAT from 17.5% to 20%.

Neither Labour, Conservative nor the Liberal Democrats have said whether or not they will increase the VAT rate if elected, but many believe it will happen as overall tax revenue needs to be increased.

Long-term care for the elderly is a massive problem for governments worldwide. A white paper is due to be published later on how to raise the funding in the UK. Labour favours a compulsory levy of some kind while the Conservatives an ?8,000 voluntary insurance scheme to cover residential care. The Liberal Democrats support a combination with finance provided by the state with some contribution from individuals, but are also open to a compulsory levy. However money for social care for the aged is found, the financial burden will fall on the public.

Many experts believe that with the capital gains tax (CGT) rate at 18% and the higher income tax rate at 50%, the CGT will increase after the election to close the rate gap and reduce the incentive for taxpayers to realise income through capital gains rather than income and pay a lower rate.

If the potential but almost definite tax rises in the UK are of concern to you and you are an expatriate about to return to the UK, or who may return at some point, or plan to leave an inheritance to UK heirs, it would be advantageous to consult a tax and wealth manager such as Blevins Franks now to learn how you could legitimately lessen the impact of any UK tax rises which may affect you in the future.

By Bill Blevins, Managing Director, Blevins Franks

14th April 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.