Ernst & Young’s Personal Tax Predictions

Chris Sanger, Ernst & Young’s Head of Tax Policy expects the following to be included in the Budget:

• The new 18% flat rate of capital gains tax will be once again confirmed together with details of the entrepreneur’s relief. The changes for taxpayers who are resident in the UK but not domiciled here will be clarified to reassure those who are considering leaving the UK as a result of the proposals.
• The rate of income tax has been fixed by his predecessor but national insurance contributions are still up for grabs by the new Chancellor.
• The Chancellor is expected to introduce measures, perhaps a change in the rate of relief, to minimise the impact that the reduction in the basic rate of income tax has had on the tax relief received by charities.
• Joint taxation of spouses was abolished in 1990 and, while this is unlikely to ever be reintroduced, are we starting to see signs that the tax system is being used to create a family unit for tax purposes. We only have to look at the tax credits regime which is based on the concept of family income to see the beginnings of a shift of approach.Next, the Government has indicated its intention to act to tackle what it calls income shifting, in other words, the arrangement of affairs so that one spouse’s income is diverted to another in order to gain a tax advantage from their lower tax rate. A consultation finished on 28 February 2008 and further details are expected in the Budget although it remains difficult to see how the proposals will work in practice.Finally, the Chancellor will take another opportunity to outline the details of the transfer between spouses of the inheritance tax exemption. Is this the final step towards taxation of the family unit or can we expect to see more developments on 12 March?
• The changes to the trust rules come into effect from April but a number of uncertainties remain. Most forms of trust are affected by the new rules but many taxpayers are unaware. The changes make planning families’ wealth much more difficult which does not fit with the Chancellor’s simplicity objective and may prompt him to amend some of the key changes.
• Green taxes are sure to be on the agenda with either further measures to encourage householders to implement green strategies or showroom taxes to discourage the purchase of cars with high emissions
• With the credit crunch really starting to bite now, the Chancellor should consider measures to encourage saving like the extension and simplification of ISAs.
• Finally, if the Chancellor really wants to cement his position as the man in control of the Treasury, reforming the antiquated stamp duty land tax regime from a slab to a graduated system would be a great place to start and would bring a fresh approach to the housing market. Chris concludes “It’s going to take something big for the Chancellor to change the first impressions of UK taxpayers but with the current economic climate, this may be difficult. The Chancellor made a good start with his commitment to competitiveness, fairness and simplicity and we now need to see some evidence of this in practice.”