Tax: Post-election taxes to rise

Tax: Post-election taxes to rise

The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

Jean-Baptiste Colbert, the finance minister to Louis XIV, said this 300 years ago but it remains as true today as it was back then. The coalition’s stated aim at the outset of this parliament was to reduce the deficit from £120bn to £40bn by 2015, but the latest figure still stands at almost £100bn.

Regardless of party and pre-election pledges not to increase tax, recent history has shown us that budgets immediately following an election will inevitably lead to increases in taxation.

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Despite levels of employment rising by 1.3 million in the past five years the number of taxpayers has fallen by 2.2 million. This is largely as a result of a huge rise in self-employment –where tax liabilities are often lower – and also in zero hours contracts.

So where are we heading with this? Whatever shape or colour the next government turns out to be, to address the budget deficit and ultimately the debt pile (currently £1.4tn), we are likely to see a combination of further cuts to public spending and new ways to increase tax revenues.

What the parties are currently saying

Let’s look at what might affect savers and investors the most from a tax perspective:

The Labour party plans to:

• Reintroduce the Schedule 19 stamp duty reserve tax

• Increase the top rate of income tax from 45p to 50p

• Introduce a compulsory jobs guarantee, paid for by a one-off bankers’ tax and restricting pension contribution relief to a maximum of 20 per cent for those with an income of over £150,000

• Introduce a mansion tax on homes worth more than £2m

• Introduce a 10p starting rate of income tax

• End the ‘shares for rights’ scheme

• Withdraw the winter fuel payment from higher-rate income tax payers

• Abolish the married couple’s tax allowance

If the Liberal Democrats, form part of the new government, they have pledged to:

• Introduce a mansion tax on homes worth more than £2 million

• Increase capital gains tax by reducing the CGT allowance to £2,500

• Limit the lifetime pensions tax allowance to £1m

• Raise the dividend tax rate for higher-rate taxpayers

• Increase the personal allowance to £12,500 by 2020–21

• Abolish free TV licences and winter fuel payments for higher-rate taxpaying pensioners

• End the ‘shares for rights’ scheme

Should the Conservatives remain in power, they will:

• Raise the higher-rate threshold to £50,000 by 2020–21

• Raise the personal allowance to £12,500 by 2020–21

• Freeze working-age benefits for two years (excluding pensioner benefits and disability benefits)

• Reduce the benefits cap to £23,000 per year from £26,000

• Withdraw housing benefit from young people

All of these manifesto pledges can probably be taken with a pinch of salt. New policy announcements will be made daily until the manifestos are produced, and possibly after. But the reality is that whoever gets into power is going to be under huge fiscal pressure.