Tax implications of the new government

One inevitable consequence of a coalition government is that concessions have to be made and campaign pledges dropped.

Before the election, the Conservatives had a pledge to raise the inheritance tax nil rate band (the assets in your estate before tax is charged at 40%) to one million pounds. The has now been put on `the back burner` for the duration of this parliament. The nil rate band remains at £325,000, the same as last year.

The Liberal Democrats` proposal to introduce a `mansion tax` on homes worth more than two million pounds has also been shelved.

The new Con-Lib coalition government has to address the budget deficit as a priority, cut spending at national and local level, and raise taxes. The rate of VAT is expected to rise to "around 20%" squeezing the pocket of every consumer of goods and services in the country. Capital gains tax (CGT) will rise from the existing rate of 18%, possibly as high as 40%, in line with the Liberal Democrats` election manifesto.

CGT is a tax on profit following the disposal of assets. Although concessions are expected for business assets, this would not apply to individuals. Owners of second homes will be hit in particular with gains achieved from acquisition exposed to 40% rather than 18%, although personal allowances can be used to set off part of the gains. However, the tax will only apply on a disposal. If the second home is retained to produce income, the increase of tax will have no immediate effect. Many landlords may take a different view and decide to sell before the new CGT tax rises become law to liquidate their assets and suffer a lower exposure to tax.

Antony J Illsley LL.B Solicitor Head of Probate