UK expected to increase taxes on rich

British Chancellor Alistair Darling is widely expected to announce a raft of tax increases for the better off when he delivers his Pre-Budget Report on Wednesday.

With the British government facing an estimated £175bn (€194.11bn) budget deficit, Mr Darling's speech is expected to contain several revenue-raising measures.

But with a general election looming, he will have to tread carefully to avoid alienating Labour supporters.

As a result, capital gains tax (CGT) and inheritance tax are thought to be the most likely taxes that he will increase, while income tax for higher earners could also be raised.

Geoff Tresman, chairman of Punter Southall Financial Management, said: "I believe that the Chancellor has no real choice but to signal an increase in taxation and I think one area where he can do so, without sidelining any of Labour's traditional support, is through capital gains tax."

CGT is currently charged at a flat rate of 18%, following changes announced in 2007, on gains of more than £9,600 (€10,648) made in any one tax year when an asset is sold. However, as people's main homes are usually exempt from the tax, it is generally only paid by the better off.

It is thought that Mr Darling may increase the CGT rate to 25% or even 30%, while some commentators think he could go further and raise it to 40%, in line with the 40% income tax band.

CGT receipts have fallen sharply this year, with HM Revenue & Customs expecting to collect just £2.22bn (€2.46bn) through the tax in 2009/2010, well down on the £7.85bn (€8.7bn) taken in during the previous year, when 350,000 people paid CGT. An increase in the CGT rate would help to offset some of this fall.

Inheritance tax is also widely tipped to be an area the British Chancellor will turn to in a bid to raise extra revenue.

It is currently charged at 40% on all assets worth more than £325,000 (€360,503), although anything left to a spouse or civil partner is exempt, while married couples and civil partners can also transfer any of their unused allowance to their partner on their death.

KPMG predict Mr Darling will hit wealthy families with the introduction of a new 50% rate on estates worth more than £1m (€1.1m).

He could also double the length of time for which people have to live after making a gift in order for it to be exempt from the tax from seven to 14 years, to make it harder for people to reduce the value of their estates.

Chartered accountants Blick Rothenberg is also expecting a new 50% inheritance tax band, although they predict this will apply to estates worth more than £1.5m (€1.66m).

It also thinks the Chancellor may put a cap on the value of business assets and agricultural land that are exempt from the tax - a move which would prove unpopular with farmers and family firms.

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