Pre-Budget Report: Rumour round-up

Alistair Darling will announce his final Pre-Budget Report (PBR) before the next General Election tomorrow, and the rumour mill is in full swing.

This year's PBR could well turn into a mini-manifesto, with the Government outlining the economic plans it hopes will win it a fourth term in power.

With that in mind, IFAonline brings you the rumours which could affect your clients, and will bring you all the PBR news, as it happens, tomorrow from about 12.30pm.

Pensions

Some in the industry fear the chancellor could do great damage to the UK's pension industry in this year's Pre-Budget Report by abolishing higher rate tax relief altogether.

Such a move would limit tax relief for pension contributions to the basic rate of 20%, meaning even those on relatively modest incomes would lose one of the biggest incentives to save for retirement.

Last year's introduction of a cap on pension relief for people earning over £150,000 a year has caused many to speculate this valuable tax relief could now be removed for those earning £100,000 or more.

Inheritance Tax (IHT)

The Government may attempt to signal differences between itself and the Tories by tightening IHT exemptions and allowances. Business property relief may be cut for businesses worth over £5m, according to PKF accountants.

Capital Gains (CGT)

The growing gap between the 18% CGT rate and the rate on top incomes, currently 50%, means an increase in CGT is highly likely.

However, there may be no warning of such a move in tomorrow's Pre-Budget Report as the chancellor will be scared of triggering a mass asset sell-off before the change is introduced.

Industry speculation suggests the basic rate could rise to somewhere between 20% and 30%, while short-term investments might face taxes up to the individual's highest marginal rates.

Non-doms

Rules on non-UK investment income and gains is expected to remain largely the same, but the annual levy for those who have lived in the UK for seven of the last nine years might rise from its current £30,000.

Income Tax

There is widespread speculation the Chancellor will introduce a new tax band for those earning between £100,000 and £150,000. The tax is likely to fall somewhere between the existing 40% and 50% rates.

Alistair Darling might also look to levy the 50% tax rate on those earning over £100,000.

It is also thought the Government could be planning to freeze the personal allowance at £6,475 for under-65s. Such a move would mean many people receiving inflationary payrises next year would be pushed into the 40% tax band.

A personal allowance freeze would be most likely to hit those on middle-incomes, while having relatively little impact on the very wealthy.