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Deloitte comments on the Coalition programme for government and the impact on personal tax

Patricia Mock, a director in the private clients practice at Deloitte, says: “There is not much more detail for personal taxpayers at this time. The commitment to increase the personal allowance is restated, with a substantial increase promised from April 2011. The benefits will be ‘focussed on lower and middle income earners’ but there is no detail as to exactly how this is to be achieved, though it is thought the benefit will be limited to basic rate tax. Thus an increase to £7,500 will give a maximum benefit of £205.

“There is also no further detail on the proposed capital gains tax changes, so it seems we will need to wait until the Budget on 22 June for this.

“There are, however, two new announcements in yesterday’s agreement.

“Firstly, there is a commitment to review the taxation of non-domiciled individuals. Given both parties’ election manifesto pledges in this area, this is not altogether surprising, although there is no indication of the direction such a review might take or when more changes would be introduced.

“The Conservatives proposed a levy on all non-domiciled individuals to fund their proposed increase in the inheritance tax nil rate band. Although it seems this increase is no longer a priority, it is possible that the flat rate levy could be extended to all non-domiciled individuals, which would be of concern to short-term assignees to the UK in particular. Alternatively, the Liberal Democrat manifesto proposal on full taxation on a worldwide basis after seven years UK residence could be taken forward.

“Non-domiciled individuals will be concerned that there are to be more changes to a regime which has seen many complex alterations over the last few years. We hope that any further changes proposed will be clearly targeted and the subject of wide consultation before introduction.

“Secondly, the further agreement refers to EU treaty obligations for the taxation of holiday letting that do not penalise UK-based businesses. This is against the background of an extension of the UK furnished holiday letting regime (which gave various tax advantages to property let on a short term lets only) to EU wide properties in 2009, as the existing regime was in contravention of EU law. The Labour government had intended to end the regime from 2010, although this did not happen. It seems that a longer-term reprieve may be on the cards for such properties, although it is not known yet whether the current regime will be replaced by a new one, and how generous that might be. Importantly, it is not known yet how the change in capital gains tax will affect such properties. Under the old taper regime, they qualified for the business rate of taper relief, and second home owners would obviously welcome their categorisation as business assets under the new rules when they are announced.”

Bill Dodwell, head of the tax policy group at Deloitte, welcomes the coalition’s review of the taxation of small business: “This review is needed, as there are too many anomalies in the current system. The same business, conducted by the same people, can pay wildly different rates on tax depending on the form adopted. It’s to be hoped that the Government will be able to take the time to consider all the different issues here.”

- Ends -

Notes to Editors:

About Deloitte

In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other's acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte LLP is authorised and regulated by the Financial Services Authority.

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