EBS

Following the usual round of Pre-Budget Report rumours - including a story in this morning’s  ’The Independent’ that the launch of the National Pension Savings Scheme (also known as ‘Personal Accounts’) would be postponed for a further year - very little materialised from a financial planning perspective - which is probably welcome news.

A summary of the key points is provided below:

• Inheritance Tax threshold frozen at £325,000 (£650,000 per couple)
• Basic state pension to rise by 2.5% in 2010
• NI to increase by 0.5% for salaries of £20,000 or more from 2011
• Small companies’ 1% increase in Corporation Tax postponed
• Introduction of a 50% employer tax on bankers’ bonuses of £25,000 and above.

This final item caused the most hilarity at EBS - not because of any dislike of bankers - simply because I communicated this as a tax on ‘bakers bonuses’ - the jokes have been awful - from ‘making too much dough’ to ‘wanting to have their cake & eat it’. At least it’s reassuring to know that these things are read…

All will be revealed this time tomorrow, but a summary of the latest rumours is as follows:

• A windfall tax on “extraordinarily high” bankers’ bonuses
• A limitation of loss relief for banks
• An extension of next year´s 50% income tax “additional rate” to all those earning over £100,000
• The removal of higher rate tax relief on pension contributions for all
• Further increases to National Insurance
• A removal of tax free income and gains for registered pension schemes ie the taxation of pension fund gains and income
• A “mansion tax” – a kind of wealth tax for £2m plus property
• A freezing of the IHT nil rate band
• An increase in the IHT rate to 50%
• An increase in the CGT rate from 18% to 25%
• An alignment of the CGT rate with income tax

EBS will publish a summary of the actual PBS content tomorrow, if you have any questions, please get in touch.

The Chancellor makes his pre-budget statement on Wednesday (9th December) and the media are already starting to speculate on what might be announced - no doubt the rumours will intensify in Sunday’s papers.

It has been widely speculated that higher-rate tax-relief on pension contributions might be further reduced or even abolished following the recent restrictions on those earning £150,000 or more. Some commentators feel that that earnings threshold might be reduced to a lower figure.

Today’s Financial Times speculates that Inheritance Tax might be increased to 50% in line with next year’s top rate of income tax. EBS will prepare a summary of the facts as soon as they are known, however, if you would like advice ahead of next week’s announcement please get in touch.