Stealth Taxes Start To Bite Despite Some Budget Amendments
Stealth income tax rises are starting to bite despite some minor amendments.
As the UK Labour Government has now asked the Queen for permission to dissolve parliament this has put the pressure on the government to quickly pass their proposed budget. This period of Government is given the nick name of "washing up" aptly named as they quickly wish to close all outstanding business before the election.
In so doing the Labour Government has had to drop three proposed taxes due to pressure from the opposition that they would block them.
The three taxes are in my view somewhat controversial and it is I believe a good idea that they have been opposed and will now be excluded from the law.
The three taxes are a tax on phone lines of 50p per month to pay for very fast broadband the removal of business tax relief on renting out furnished holiday homes and increased taxes on Cider.
The tax on phone lines was introduced as a key point of the Governments plan to introduce a nation wide high speed broad band system. It had been estimated that this telephone line tax would have raised some 100 million a year. Whilst the idea of a superfast broadband is a great idea it does seem a bit parsimonious to inflict the cost on all telephone users many of whom indeed may not want broadband. I have in mind retired folks who perhaps just a have phone line to keep in touch with their family and also as a help line.
The proposed tax changes to furnished holiday lettings were expected to fall on more than 120,000 self catering holiday businesses and it was estimated that the extra tax take would have cost each home owner an estimated average of over 4,000 for each tax year. The reason for the proposed higher tax charge is that currently owners of furnished holiday lets have been able to treat this income as arising form a trade and in which case losses could be offset against other income and the tax rules are very different for profits arising from a trade. If this change had been made then the income from furnished holiday lettings would have been assessed in exactly the same manor as other forms of income that arise from property letting.
The last proposed tax was a rather drastic increase of 10% on Cider which is a very popular and refreshing drink and one that has grown in popularity very considerably over the last few years.
It was believed that whilst Cider has been taxed at a lower rate than other drinks that it would be very harsh on the Cider Industry and this would be reflected in both reduced sales and lower employment.
Despite these three amendments the budget still has quite a bite and tax payers will now start to feel its effect from the start of the new tax year on 5th April 2010.
Many of the stealth tax changes have been in place for some time including the introduction of the new top tax rate of 50p. But as personal allowances and tax thresholds have been frozen there is quite an element of fiscal drag in that more tax will be collected from the same pay packet. For example the tax free personal allowance remains at 6,475 as opposed to 6,670 if it had risen in line with inflation. Another example is the higher income tax rate threshold which has been fixed at £43,875 until the year 2013. If this had been increased in line with current inflation then it would be in the region of £45,400.
The direct impact of this is that a lot more people will have to pay the higher rate of Income Tax for the first time and the increase in tax liability for each of them will be just under 500.
Those who are very lucky enough to earn more than £100,000 will suffer a withdrawal of their personal tax free allowance at a rate of 1 in personal allowance for each 2 of income until the personal tax free allowance falls to nil at £112,950 or above. The effective marginal tax rate then on this band is 60%. If you are in this band then it must make sense to consider some tax planning such as making an additional pension payment.
by: Peter Jones
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