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Gordon trying to sweeten the Budget.

With the Chancellor presenting his spending plans tomorrow, Louise Evans looks at what pensioners, children and families can expect WITH this year's Budget taking place just weeks before the General Election, the Chancellor will set out to be as voter friendly as possible when he comes to the Dispatch Box tomorrow.

The health of the UK economy is being thrown increasingly into the spotlight, but with an election taking place most probably in the next couple of months, the Chancellor is likely to have a few 'sweeteners' up his sleeve.

It means that the focus will be on children, pensioners and families. At the same time, Mr Brown won't want to compromise his reputation as a 'prudent' chancellor, by announcing a giveaway budget for the population as a whole.

But what exactly can we expect from Mr Brown - and what impact will it have on our personal and business incomes? We believe that he should focus on some of the following issues:

Inheritance Tax - Unlike the Conservative Party's proposals, Gordon Brown appears to have ruled out Inheritance Tax (IHT) reform, and no increase beyond the rate of inflation (RPI) in the nil-rate band is expected. This would mean an increase from the current pounds 263,000 to pounds 272,000.

This is extremely disappointing, but it's hardly a surprise. In opposition, the Labour Party called Inheritance Tax 'unfair', but Mr Brown appears to have forgotten this. Despite claims that only 5% of estates are caught, we estimate that about 10% of all estates are now liable for IHT. Is this still a tax levied only on the very rich?

Since 1997, house prices have increased by a national average of 139%. If Mr Brown were to use this rate to increase the IHT nil-rate band, the threshold would now stand at approximately pounds 513,850, which would alleviate worry and hardship for thousands of people.

Most people object to Inheritance Tax because it is seen as double taxation; people work throughout their lives, pay their taxes, only to have their hard-earned assets taxed again when they die. In addition to this, at 40% it's an extremely high rate, and it usually comes at a time of emotional grief.

The Child Trust Fund - Mr Brown has gone to great lengths to stress that one of his priorities is eradicating child poverty, and we can expect further child- friendly measures in the Budget. For children born after September 2002, parents are now able to set up a Child Trust Fund, a tax-efficient savings vehicle to be made available when the child reaches 18 years of age. However, children born before this arbitrary cut-off date are being unfairly excluded from the Child Trust Fund.

But many people remain to be convinced that the Child Trust Fund is the best way to save for your child's future. Fewer providers have signed up than the Government anticipated, and there is no guarantee that from 2023 when the funds start to mature, the government of the day won't find a way to dictate how the money must be spent.

Council Tax - This has been one of Mr Brown's 'stealth taxes' with receipts having increased by an unprecedented 99% over his chancellorship.

In last year's pre-Budget report, Mr Brown announced pounds 1bn to help councils keep Council Tax down, and it's telling that in this, an election year, Council Tax will rise by an average of 4%; the smallest increase for 11 years.

However, it seems unlikely that Mr Brown will pledge to help pensioners who have been hit hard by recent rises.

Stamp Duty Land Tax - This has gone up by as much as 3,000% (including inflation) during the time Mr Brown has been Chancellor. In 1997, 51% of all property transactions in England and Wales escaped a Stamp Duty charge as they were below the pounds 60,000 threshold. By the end of 2004, this figure had reduced by a dramatic 86% to just 7% of property transactions.

First-time buyers have been hit hard by the double whammy of the property boom and the SDLT system.

Although we think the Chancellor will raise the Nil-rate threshold, which will benefit some first-time buyers in particular, unless he changes the structure of the tax, the increase in the nil-rate band will count for little. If the nil-rate band rises to say pounds 100,000, there would be no gain for the purchaser of a modest dwelling costing pounds 140,000. They will still pay pounds 1,400 in tax.

Overall, I believe the economy is performing too well for the Chancellor to announce anything drastic at the Budget.

However, voters need to be aware that unless he curbs his spending plans, it's entirely possible that Mr Brown may bring in measures such as an increase in National Insurance contributions, or a rise in the VAT rate, after the General Election.

Louise Evans is South Wales Tax Partner at accountancy firm Grant Thornton
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Publication:Western Mail (Cardiff, Wales)
Date:Mar 15, 2005
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