Changes to Stamp Duty and Inheritance Tax predicted

Chartered accountants MacIntyre Hudson predict that Chancellor Gordon Brown will tread with caution in the forthcoming pre-Budget Report Victor Dauppe, principal at MacIntyre Hudson, comments: “As most of the evidence suggests a general election in May of next year, we believe that the Chancellor will save any major announcements for the spring Budget – when the Government will be in full campaign mode. However the pre-Budget Report could provide a few sweeteners to ‘Middle England’ swing voters as well as a retreat on some of the more unpopular measures that have recently caused friction between taxpayers and the Revenue. “Essentially I can see that the Chancellor will want to be portrayed as a friend of the ordinary, honest man on the street, and at the same time demonstrate that his much needed funds for Treasury coffers will come from increasing the tax bills of the very wealthy.”

MacIntyre Hudson’s pre-Budget Report odds table:

No wonder the Blairs bought when they did! – changes to Stamp Duty

While the housing market is showing signs of cooling, the exponential inflation in house prices since 1997 has meant that homeowners are paying record levels of Stamp Duty Land tax. Originally designed to target wealthy property owners, the upper rate of 4% for property transactions worth £500,000 and over now hits anything from a country estate to a suburban family home in the South East. MacIntyre Hudson suggests that the Chancellor will announce an increase in the starting point for the 4% rate of Stamp Duty on property transactions from the current level of £500,000 to £750,000. The loss in yield could be offset by the introduction of new bands – 5 % duty for transactions from £1 million to £1.5 million, and 6% thereafter. Victor Dauppe, principal at MacIntyre Hudson says: “Stamp duty in the UK remains lower than the rest of Europe and could therefore be an easy source of much needed revenue. By proposing a rise in the upper limit of the 3 % band in conjunction with the introduction of higher stamp duty bands, the Chancellor could offer a sweetener to ‘Middle England’, whilst still raising funds and being seen to be targeting the very rich.”

Keeping it in the family – inheritance tax

In a similar vein, the Chancellor could make alterations to the rules for inheritance tax (IHT), something which is widely resented and has received a great deal of negative publicity. A rise in the threshold from £263,000 to £300,000 would be widely welcomed. The Chancellor could offer this inducement without upsetting the Treasury’s sums by simultaneously introducing a higher rate of tax on more valuable estates. There is growing support for banded taxation, like that used for income tax, which many believe would be fairer system. MacIntyre Hudson predicts that the Chancellor will raise the starting point for inheritance tax from £263,000 to £300,000 and introduce a higher taxation rate of 50% on estates over £1.5 million. Victor Dauppe, principal at MacIntyre Hudson says: “The number of estates likely to be hit by inheritance tax has increased almost five fold under the present Government, as the exemption level has failed to move in line with property inflation. With the Revenue still failing to provide clarity on the contentious issue of Pre-Owned Assets , a rise in the exemption threshold and the introduction of a banded system of taxation could help to cool heated emotions on this issue.”

Helping healthy habits

With the health of the nation becoming an increasing concern, and the concept of a ‘fat tax’ dismissed, the Chancellor could achieve a pseudo ‘fat tax’ by extending standard rate VAT, which is already payable on potato crisps, to other ‘unhealthy’ snack foods. MacIntyre Hudson believes, however, that much more plausible than any punitive action are incentives to lead a healthier lifestyle. MacIntyre Hudson predicts that Gordon Brown will exempt employers’ payment of gym membership as a benefit-in-kind taxation. Victor Dauppe, principal at MacIntyre Hudson says: “A tax exemption on gym membership provided by an employer as a benefit in kind offers an easy means for the Chancellor to demonstrate the Government’s support for efforts to improve the health and lifestyle habits of the nation.”

Further tampering with taper relief

Capital Gains Tax Business Asset Taper Relief has been a familiar feature of Gordon Brown’s Budget announcements and owners of business assets now enjoy maximum taper relief after just two years of holding the asset. However, owners of non-business assets are growing increasingly dissatisfied with the less generous relief available on the disposal of non-business assets. MacIntyre Hudson predicts that Gordon Brown will announce a reduction – from 10 years to 5 years – in the holding period of non-business assets to qualify for the maximum taper relief. Victor Dauppe, principal at MacIntyre Hudson says: “With full taper relief now available for business assets after just two years, but only after ten years for non-business assets, there is an increasing focus on meeting the criteria for business assets. By reducing the qualifying period for full taper relief for non-business assets, the Chancellor could eliminate many of the disputes in this area.”

Corporation tax – associated companies

Small companies with taxable profits of between £50,000 and £300,000 currently qualify for a corporation tax rate of 19 %, compared with the standard rate of 30%. However, the threshold is split according to the number of associated companies, with profits above that limit taxed at the marginal rate applying to the next band. Therefore the existence of a large number of subsidiaries or small companies within a group can have a serious impact on the amount of tax paid. MacIntyre Hudson predicts that the Chancellor will announce amendments to the corporation tax rules for associated companies. Victor Dauppe, principal at MacIntyre Hudson says: “A change to the rules governing corporation tax for associated companies would remedy a discernibly unfair situation in which businesses with a large number of associated companies, even where these are foreign subsidiaries, are unjustly penalised. Adjustments would be welcomed by business and could be presented as an encouragement for international trade.”