Darling steals Cameron's best two ideas
By Chris Gilchrist    10th October 2007

In his pre-budget report, Chancellor Alistair Darling stole two of Conservative leader David Cameron's best ideas to make up for a lack of giveaways. Both are watered-down versions that won't work as well as the Conservative proposals.

Number one is inheritance tax. Shadow Chancellor George Osborne proposed a one million pound exemption, as compared with the current £300,000. Darling has responded by making the current allowance (the 'nil rate band') transferable between legally married couples.

So if one of the partners dies and leaves all their money to the other partner, then on the later death of their partner, they'll have an exemption of double whatever the exemption is at that time.

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Less generous than it sounds
That sounds generous but in fact, anyone who gets sensible legal advice today should be making use of the 'nil rate band' through setting up trusts.

In the case of a couple who've done this, so that on the death of the first of them, £300,000 goes into trust for family members, they will actually gain nothing at all from Darling's 'giveaway'. The only real benefit is that the exemption (currently £300,000) will rise to £350,000 by 2010.

And of course single people get no benefit at all from 'transferability'. Perhaps this will encourage them to get married.

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More tax for the rich
The second steal is on the infamous 'non-doms', the rich foreigners who set up home in the tax-friendly UK and pay virtually no tax despite owning gigantic mansions and having huge incomes.

Labour rubbished the Tory suggestions for a levy on these people, but that is exactly what Darling has now done. Any non-dom who has lived in the UK for over 7 years and who claims the normal non-dom exemptions for foreign income will pay an annual levy of £30,000.

Unlike the Tory proposals, Darling's measures give non-doms several years to reorganise their affairs so that they can once again escape the taxman and it's questionable how much extra tax it will ever generate.

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Simpler capital gains tax
But Darling's planned reform of capital gains tax probably will bring home the bacon. Today's system is universally derided as a complete mess, so complicated that nobody understands the rules and the tax authorities get tax assessments wrong more often than not.

Darling proposes to sweep away the link between income tax and capital gains tax and just have one flat 18% capital gains tax rate. Provided the annual exemption (currently £9,200) is raised - which won't be announced till next March - most taxpayers will be better off, but there should also be some very big losers, namely the private equity investors who currently pay virtually no tax on their multimillion pound bonuses.

In the long run, though, the change is sure to generate new loopholes and opportunities for tax avoidance, since people with incomes on which they pay tax at 40% will try to find ways of converting it into capital gains on which they only pay 18%.

Worried about Inheritance Tax? Take advice here

No news is no news
Darling's speech contained no reference to income tax or national insurance, which means all the thresholds simply rise in line with inflation. The levels of these are based on September's inflation figure, so the actual rates for 2008-09 won't be published for a few weeks.

There's a small gain for families with children, as the child element of Child Tax Credit is increased by £25 per week from next April.

And in a way made all too familiar by his predecessor, the wooden Chancellor tried to lift a dull speech by saying that pensioners would get £200 million more to subsidise their free bus travel.

Darling's speech was certainly more buss pass than Ferrari, and the claims of sound public finances ring hollow, when there are spending increases on the NHS and education but no tax increases to pay for them- which means government borrowing will rise.

If this is sound public finances, then the collapse of Northern Rock is evidence of a system of banking regulation that is working well- which is just what Darling's boss said the other day.

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Article produced by EveryInvestor.co.uk