Life under the UK taxman

news: Life under the UK taxman

Orwellian bureaucracy?

There are many reasons why British nationals choose to retire in Portugal. Leaving the UK taxman behind is just one of them, one which has become less valid since Portuguese tax authorities became tougher and the EU Savings Tax Directive came into play. However, if recent reports are to be believed, many expatriates will be thankful that they no longer live in the UK and pay council tax.

First of all, The Telegraph reported that the government is planning a new stealth tax – a tax on luxury if you like, even if you have worked hard to achieve certain comforts. The paper reports that official documents show the government is going to “extraordinary lengths to build a detailed database of properties across England, with the intention of placing them in a higher council tax band”.

Taxpayers will have to fork out substantially more tax if they have many bedrooms, a swimming pool, conservatory, large patio and so on, or if the property is in a conservation area, gated community or has nice views.

The Telegraph later reported that council tax inspectors would have the power to enter homes and take photographs: “Whitehall documents reveal that they will be allowed to ‘obtain factual information from internal inspections’ as part of the enormous exercise to revalue 22 million properties in England.”

The Valuation Office Agency sought advice from the Office of the Surveillance Commissioner, who said that entering homes would not contravene the Regulation of Investigatory Powers Act or the Human Rights Act. So much for personal privacy being protected … but, in today’s world, should we really be surprised if this comes to pass?

Both political parties have reacted to the story. Conservative local government spokesman, Caroline Spelman, complained: “The privacy of law-abiding citizens will be ignored because of Labour’s compulsion to levy stealth taxes on hard working families and pensioners and not only will homes face soaring council tax bills, but everyone will pay the price for this Orwellian bureaucracy.”

The Office of the Deputy Prime Minister responded by saying it was “ridiculous” to suggest that all properties would be visited, insisting that “there will be no armies of people sticking cameras through your window”. A valuer will only have to visit a property if it is “peculiar” or if they didn’t have information relating to a property. However, the spokesman said it wasn’t possible to predict how many visits would take place under the new council tax regime.

If all this comes to pass, expatriates will breathe a sigh of relief that they no longer live in the UK; especially those who worked hard to afford their dream home in Portugal. Let’s just hope that other countries don’t jump on the bandwagon … Portugal, for example, is getting much stricter about house valuations. I fear the desire of governments to tax our wealth is only going to get stronger, and these reports from the UK are just an example of this.

Inheritance tax explosion

Inheritance tax – another hot topic and government earner, and the news here is not good either. Grant Thornton and Lombard Street Research recently carried out a study that concluded that around 3.6 million people would be liable to pay UK inheritance tax (IHT) by 2009. This is a huge increase of 70 per cent on 2002, the last year when complete data was available.

Brian Reading, director of Lombard Street Research, said: “There is no doubt that, if the future is anything like the past, the number of estates potentially liable to IHT will explode.”

Mike Warburton, senior partner at Grant Thornton, said: “Given asset price inflation and the UK demographics, in 10 to 20 years, when the post-war baby boom generation begins to pass away without reform, IHT could become a hugely significant revenue stream for the Treasury. By the next election, an awful lot more people will be worrying about this tax. Those who will suffer will be the people of Middle England.”

The study shows that the primary reason for this increase is the fact the IHT threshold has only risen in line with inflation, and not with property prices.Between 1997/98 and today, average house prices in the UK rose by 142 per cent. The IHT threshold rose by 28 per cent. IHT receipts will, therefore, more than double to a projected 3.4 billion pounds this year.

There are no signs that the government will raise the IHT threshold, indeed in the last budget Gordon Brown set the limit for the next few years, to reach 300,000 pounds in 2007/08. IHT is clearly a nice little earner for the government and they don’t appear in any hurry to change it.

Unlike council tax, however, emigrating to Portugal does not mean you have left the UK inheritance taxman behind. For many expatriates, there will be no sigh of relief to breathe here, especially if they own property in the UK or property prices in Portugal rise.

IHT is based on domicile, not residence, and many expatriates remain UK domiciled or regain their UK domicile status in their later years by returning to the UK. The good news is that it is possible to both change your domicile status (this depends on many factors, including your future plans) and to plan to legally avoid IHT. Expert advice is essential to ensure you take the right steps, otherwise your family may be faced with an unexpected tax bill in the future.

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