The next General Election is due on 7 May 2015 and politicians are already jostling for position, with talk of another coalition in the air. As a result, the Liberal Democrats’ latest paper on tax policy has considerably more relevance than some of its predecessors. The paper, issued for discussion at this month’s party conference in Glasgow, makes a wide range of proposals. Among the more notable are:
- An end-of-the-Parliament target for the personal allowance to match the income level equivalent to full-time employment on the National Minimum Wage (around £12,300 from October 2013). The allowance is currently £9,440, rising to £10,000 in 2014/15.
- A choice of either leaving the top rate of income tax unchanged, or returning it to 50%, subject to a study showing “that it was likely (on the balance of probabilities) that the revenue raised was less than the cost of making the change.”
- A further reduction in the lifetime allowance for pensions to £1m, but no other changes to pension tax reliefs. The allowance is currently £1.5m, falling to £1.25m from 6 April 2014 (at the same time as the annual allowance drops by a fifth to £40,000).
- A reduction in the individual capital gains tax annual exemption from the current £10,900 to £2,000, with gains taxed at full income tax rates, i.e. up to 45%/50%. To complicate matters for the greatly increased number of CGT payers, indexation relief would be reintroduced.
- The introduction of a Land Value Tax, to “replace business rates and property taxes.” However, it would not usurp the role of the Lib Dem’s beloved mansion tax, which remains on the agenda at 1% of residential property value of £2m.
- The period after which lifetime gifts would be ignored for inheritance tax purposes would be extended from seven years to fifteen. Ultimately the tax would move to an accessions/capital receipts basis, under which tax would be paid by the recipient(s) of bequests (after a lifetime allowance is exceeded), based on their income and circumstances.
While these ideas may never see the light of parliamentary day, they could serve as a useful checklist for long term tax planning.