The first coalition government in Britain since 1945 has released their plans for reform in advance of them formally making their emergency Budget announcement on 22nd June 2010.
Compromises have been made on both sides; most notably the Conservatives have dropped plans to raise the Inheritance Tax threshold to £1 million and therefore will not now take more estates out of this tax’s scope.
The Lib Dems have agreed to “shelve” their “mansion tax” on properties worth £2 million or more.
Proposals to raise the employee National Insurance (NI) contributions are not now going ahead whereas employer NI contributions are still set to rise. Both parties are keen to increase the income tax threshold to £10,000 over the next few years.
Capital Gains Tax on non-business assets is set to increase to similar rates as income tax meaning that the current rate of 18% will be replaced by one much higher.
There has been talk of a new VAT rate of 20% to move in line with the European average but nothing is cast in stone here yet.
The default retirement age is planned to be phased out, with a review to establish the dates at which state pension retirement age begins to rise to 66.
The smart can learn a few lessons here.
As the old saying goes “never put off till tomorrow what can be done today”. Some investors may have put off estate planning believing their estates will fall out of the scope of inheritance tax when the government changed. For those of that mindset this area of planning will now urgently need rethinking.
Likewise, the impact of the new CGT changes no doubt will need consideration in investor’s portfolio management. The timing of realising gains and losses will be directly affected by an increased tax burden.
Retirement planning has long been on the agenda for anyone serious about having “a life” rather than a “survival” in retirement and these plans underline the need for constant reviewing and audit of those plans already in place.
