Tax proposals in the Liberal/Conservative coalition agreement

On 12 May the Conservatives & Liberal Democrats published a coalition agreement stating some of the key policy areas they intend to take forward. Some of the key points are:

The raise in the IHT increase is put on hold and is unlikely to be introduced this parliament

There will be a rise in CGT on non business assets. This will make the CGT rate on non business assets 'similar' to the rate of income tax. The crucial definition here of course will be what is a 'non business asset'? For instance would it use the old taper relief definition where all unquoted shares in trading companies were business assets, or the new Entrepreneurs relief definition where you need to be an employee/officer and own >5%? It's also stated they will look to reach agreement on the CGT increase and therefore it would be unlikely to be enacted in the Emergency Budget. It's more or less certain though that investment property will not be a business asset. Most financial investors (eg in shares, forex, futures, options etc) will be caught by the new increased CGT rate. Given the company rates are much lower this is likely to make using a company much more effective for many. In particular you'll see more arguments for trading status (as opposed to investor status if the rates are the same) as you'll then have a much wider expense deduction and could also use a company to reduce taxes -particularly for financial investors & traders.

The scrapping of the NIC increase will go ahead

The personal allowance will be raised substantially for lower/middle income earners from April 2011

The transferable personal allowance is still on the cards, at some point but the Liberals will be allowed to abstain (meaning it may not get passed)

There is no mention of any reforms affecting non-doms, although both parties were in favour of a less generous tax regime for non doms. Although the blanket £25K tax on non doms was to fund the IHT increase (which is on hold) this does not necessarily mean the non dom extension is also put on hold We'll need to wait for details of the changes, and will be writing articles on the impact of the changes as and when details are published.