The new coalition Government in the United Kingdom has announced some tax policies ahead of a special Budget which is due on 22 June 2010.
A summary of the significant tax proposals is as follows:
Capital Gains Tax (“CGT”) – where paid by individuals or trustees, this will rise to be in line with the top rate of income tax paid by the taxpayer. This will see the CGT rate increase from 18% to potentially 50%. When the rates will become effective is not clear: whether from the date of the special Budget, the start of the current tax year i.e, back-dating the higher rate to 6 April 2010 (which seems highly unlikely), or implementation at the start of the next tax year beginning on 6 April 2011.
Although it is suggested there will be “generous exemptions” for “business-related profits”, to reduce potential impact on entrepreneurs. Although these terms are not explained, there is unlikely to be any respite for individuals who own, for example, shares in listed companies or second homes.
National Insurance Contributions (“NICs”) – this is the UK form of social security contributions. The proposed increase of 1% in the rate of employer’s NICs which was due to come into effect on 6 April 2011 will not take place. Whilst this is good news for businesses, employees will still be subjected to an increase in employee’s NICs of 1% from 6 April 2011 onwards (so that it will be 12% on annual earnings below £44,000 and 2% for earnings above that level).
Banking Levy – a banking levy is proposed. This follows on from the IMF proposals for a universal bank levy and a further tax on profits and pay due to be debated by the G20 leaders in June 2010. Any detailed proposals are unlikely before the G20 discussions in June.
Corporation Tax – in the Conservative election manifesto, there was a commitment over time to reduce the headline rate of 28% for corporation tax on corporate gains and profits to 25% which would be funded by changes making the capital allowances regime (effectively, tax depreciation) and other tax reliefs less generous. However, there is no mention of this in the Coalition Agreement.
VAT – as a quick revenue raiser, there has been much speculation that the VAT rate will rise. A rise from 17.5% to 20%, the average EU rate, is suggested in the media, but, again, there is no mention of this in the Coalition Agreement.
Short term actions
Although there is still a fair amount of uncertainty surrounding the tax changes due to be introduced in the special Budget, one thing we can be sure of is an increase in the CGT rate for non-business assets (however defined) in the relatively near future. Clients with capital gains may therefore usefully consider ways of locking in the benefit of the current CGT rate whether through sales or other means. We have considerable experience of such techniques.
For further information on this and other United Kingdom tax planning ideas, please contact:
Richard Croker Partner – CMS Cameron McKenna E [email protected]
Nicholas Stretch Partner – CMS Cameron McKenna E [email protected]
Keith Gregory Partner – CMS Cameron McKenna E [email protected]
Mark Nichols Partner – CMS Cameron McKenna E [email protected]