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MONEY COMMENT
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There's some bad news for UK taxpayers today, with the publication of a report by a leading think-tank, the Institute for Fiscal Studies. The IFS expects over four million taxpayers to be paying higher-rate tax in five years' time, which is around twice as many as there were in 1997. This tax year, the number of top-rate taxpayers is expected to rise to 3.3m. That's around one in nine income taxpayers, and is up by more than half (57%) on the figure of 2.1m recorded back in 1996/97. The main reason why more people are paying 40% tax is that our incomes are rising at a much faster rate than tax bands and allowances, which tend to go up in line with inflation (rising prices). So, if your income has crept up above £35,000 fairly recently, it's likely that you'll find yourself paying some tax at 40%. This can be a royal pain in the posterior, because you end up paying extra tax on other sources of income, such as savings interest and dividends from shares. Even worse, you have to fill in a dreaded tax return every year - boo! Another tax that hasn't kept pace with rising prices is inheritance tax (IHT). The threshold for this 'death tax' will rise to around £263,000 for the next tax year. However, if it had kept up with rocketing house prices, it would now be the thick end of £400,000. What's more, hidden in the small print of his recent pre-Budget report, the Chancellor has announced that he is to close a (completely legal) loophole used to reduce IHT bills. If you have created a trust in order to leave your home to your children, but continue to live in your property, you could be hit with a yearly income tax bill. This change will take effect in April 2005, and could hit tens of thousands of families whose homes are currently valued at over £250,000. One expert predicts a yearly bill of around £12,000 on a house worth half a million pounds – ouch! However, it will still be perfectly legal to avoid IHT by giving your home to someone else and moving out – a 'gift without reservation'. Anyway, if you want to keep Uncle Gordon's greedy mitts off your hard-earned lolly, check out these articles: