National insurance tipped to rise in Darling tax clawback

Published on Friday 20 November 2009 18:36

CHANCELLOR Alistair Darling is set to target national insurance and inheritance tax in next month's Pre-Budget Report as he looks to plug gaping holes in the public purse, experts have predicted.

An increase in the rate of capital gains tax (CGT) is the most widely predicted measure ahead of the 9 December report. Many experts anticipate an increase in CGT to 25 or 30 per cent, bringing it closer to the income tax rate, which will rise to 50 per cent for high earners in April.

There is a growing belief that the government will also seek to generate more revenue from national insurance by increasing the upper earnings limit.

Currently, employees with gross earnings of between 5,715 and 43,875 pay national insurance at 11 per cent. Those on more than 43,875 pay 1 per cent on their gross earnings above that figure.

John Cairns, head of tax at BDO Scotland, said an increase to the rate paid above the upper earnings limit was likely to be under consideration.

"A lot of people have earnings over 43,875 but below 100,000 and are suffering no extra tax, so the government could see that as an opportunity to raise money," he said.

Employees earning above 150,000 face a new income tax rate from April, while those on more than 100,000 will lose personal allowances until they get to nearly 113,000, after which they will have no allowance.

Less likely, say the experts, is a change in the inheritance tax (IHT) threshold, but there is a possibility that IHT exemptions for business and agricultural property will be restricted. As things stand, business and agricultural property are both exempt from IHT, so that family businesses, including farms, can be passed on.

However, Ian Clark, who is a partner in trusts and tax at Turcan Connell in Edinburgh, said: "Agricultural property reliefs have been highlighted by the government as being generous, and there's a political concern about these."

Ronnie Ludwig, partner at Saffery Champness Chartered Accountants in Edinburgh, called on the Chancellor to increase the IHT threshold or remove the main home from IHT calculations entirely.

"It was originally introduced to tax only the particularly wealthy who chose to hold on to their wealth well into their old age," he said. "But even with the current state of the property market, there are many people who are pushed into the IHT net purely because of the value of their home."

There is little indication the Treasury will extend the stamp duty holiday. The threshold was increased to 175,000 last year, but is due to revert to the permanent 125,000 level on 31 December. David Rolleston, mortgage broker at Mortgage Advice Brokerage in Glasgow, said: "I am hopeful that the Chancellor will see sense and extend it for at least six more months, but the silence is deafening at the moment."