Stealth Taxes Start to Bite

Stealth income tax rises are starting to bite despitehad been made then income from furnished holiday
some minor amendments.lettings would have been assessed in exactly the
As the current UK Labour Government has nowsame manor as other forms of investment income
asked the Queen for permission to dissolve parliamentthat arise from property letting.
this has the effect of placing pressure on theThe last proposed tax was a 10% increase on Cider
government to quickly pass their proposed budget.which is a very popular and refreshing drink and one
This period of Government is given the nick name ofthat has grown in popularity very considerably over the
"washing up" aptly named as they quickly wish tolast few years. It was believed that whilst Cider has
close all outstanding business before the election.been taxed at a lower rate than other drinks that it
In so doing the Labour Government has had to dropwould be very harsh on the Cider Industry and this
three proposed taxes due to pressure from thewould be reflected in both reduced sales and lower
opposition that they would block them. The threeemployment.
taxes are in my view somewhat controversial and it isDespite these three amendments the budget still has
I believe a good idea that they have been opposedquite a bite and tax payers will now start to feel its
and will now be excluded from the law. The threeeffect from the start of the new tax year on 5th April
taxes are a tax on phone lines of 50p per month to2010.
pay for very fast broadband the removal of businessMany of the tax changes have been in place for
tax relief on renting out furnished holiday homes andsome time including the introduction of a top tax rate
increased taxes on Cider.of 50p. But as personal allowances and tax thresholds
The tax on phone lines was introduced as a key pointhave been frozen there is quite an element of fiscal
of the Governments plan to introduce across thedrag in that more tax will be collected from the same
country a high speed broad band system. It had beenpay packet. For example the personal tax free
estimated that this telephone line tax would haveallowance remains at £6,475 as opposed to
raised some £100 million a year. Whilst the idea£6,670 if it had risen in line with inflation. Another
of a superfast broadband is a great idea it does seemexample is the higher income tax rate threshold which
a bit parsimonious to inflict the cost on all telephonehas been fixed at £43,875 until the year 2013. If
users many of whom indeed may not wantthis had been increased in line with inflation then it
broadband. I have in mind retired folks who perhapswould be in the region of £45,400.
just a have phone line to keep in touch with their familyThe direct impact of this is that a lot more people will
and also as a help line.have to pay the higher rate of Income Tax for the first
The proposed tax changes to furnished holiday lettingstime and the increase in tax liability for each of them
were expected to fall on more than 120,000 selfwill be just under £500.
catering holiday businesses and it was estimated thatThose who are very lucky enough to earn more than
the extra tax take would have cost each home£100,000 will suffer a withdrawal of their
owner an estimated average of over £4,000personal tax free allowance at a rate of £1 in
for each tax year. The reason for the proposed higherpersonal allowance for each £2 of income until
tax charge is that currently owners of furnishedthe tax free personal allowance falls to nil at
holiday lets have been able to treat this income as£112,950 or above. The effective marginal tax
arising form a trade and in which case losses could berate then on this band is 60%. If you are in this band
offset against other income and the tax rules are verythen it must make sense to consider some tax
different for profits arising from a trade. If this changeplanning such as making an additional pension payment.