Tax implications of Con-Lib coalition government
Both Conservatives and Liberal Democrats were obliged to drop some of their campaign promises when agreeing to form a coalition government on Tuesday.
Tory plans to raise the inheritance tax nil rate band to GBP1 million have been shelved for the duration of this parliament. The LibDem proposal for a "mansion tax" on houses worth more than GBP2 million has been dropped, probably for ever.
However the most significant news is that the new chancellor, George Osborne, will soon present an emergency Budget raising capital gains tax rates to levels "similar or close to those applied to income" - that is, from 18 per cent to 40 per cent, in line with the Liberal Democrats' election manifesto.
The new rate will, however, only apply to non-business assets, and there are to be "generous exemptions for entrepreneurial business activities". This means shares, second homes and buy-to-let property will be the main targets of the tax.
Newspapers, including the Financial Times, are predicting heavy selling of these assets before the new rate comes into force. It is not yet clear whether the change will be implemented immediately or even retrospectively.
"The hope is that any change will not be before 2010/11 to allow sensible business and tax decisions to be made in good time", said Francesca Lagerberg, head of tax at accountants Grant Thornton.
Another ominous passage in the coalition's joint policy statement promises that "all efforts will be made to tackle tax avoidance, including detailed development of Liberal Democrat proposals.
"This could include a campaign proposal by Vince Cable (now a minister) for a general anti-avoidance provision for corporation tax.
Before the election the party also advocated closing "loopholes" such as preventing the avoidance of stamp duty land tax by transferring property into offshore trusts, restricting non-dom status to a maximum of seven years, and stopping business owners paying themselves in dividends taxed at 18 per cent.
The Tories' proposal for limited transferability of personal tax allowance between spouses has not been dropped, but Liberal Democrat MPs will be allowed to abstain on budget resolutions dealing with it.
The emergency budget will appear before the end of June, aided by an independent Office for Budget Responsibility.
A full spending review will be held during the summer, reporting in autumn. This will follow a "fully consultative process involving all tiers of government and the private sector", says the new government.
13 May 2010 Taken from the STEP REPORT
