Details Emerging For UK Tax Changes

May 13, 2010 Taxation in UK

Day 115 - VoteDetails are emerging about the possible upcoming changes to UK tax system, following the creation of a new coalition Government between the Conservative Party and the Liberal Democrats. Despite both parties varying pre-election promises, a concise picture is beginning to emerge about possible alterations to taxes in the near future.

Following the UK’s May 6th General Election the Conservative Party and Liberal Democrats formed a coalition. The two parties are now attempting to consolidate their differing economic and taxation policies. Currently, the discussion revolves around National Insurance Contributions, Capital Gains Tax, and Inheritance Tax. Although both parties have already agreed that the eventual changes will need to be more drastic than indicated by the previous Government, in order to achieve an “accelerated growth” in the nation’s economic recovery and reduction of national debt.

The new coalition has announced that substantial tax benefits will be provided to low and middle-income earners from April 2011. Although the nature of the benefits have not been disclosed, it was revealed that the cost of the eventual tax breaks will be offset by increases to National Insurance (NI) contributions made by employees. The previous Government’s proposed increase to NI payments made by employers has now been ruled out. The UK’s Capital Gains Tax (CGT) will be raised from its current rate of 18 percent to a probable 40 percent. The change could be exasperated by a proposed reduction in the CGT threshold from the current GBP 10 100 to a level as low as GBP 2 500. Thresholds for the much discussed and controversial Inheritance Tax have been delayed indefinably by both parties of the coalition.

The parties have already agreed to cut “non-frontline” Government spending by approximately GBP 6 billion. As a concession to the Liberal Democrats, the Conservative party has settled to devote some unspecified portion of the saved money to “support jobs”, as opposed to directly reducing the Government deficit. The coalition’s current plans and promise of accelerated deficit reductions has prompted Mervyn King, the Governor of the Bank of England, to describe the expected changes as “strong and powerful.”

Photo by jackhynes