EY comments on restriction of tax allowance increases to 1%

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The “one and only” – Patrick Stevens, tax partner at EY comments on restriction of tax allowance increases to 1%

"The Chancellor has announced a 1% increase in the higher rate tax threshold for 2014/15 and 2015/16, as well as a 1% increase in the annual allowance for capital gains tax and the annual allowance for inheritance tax. 

"These below-inflation rises increase fiscal drag and will increase the number of people paying tax at 40%, as well as estates liable to inheritance tax. Together this will raise over £1 billion per annum by 2017-18.

"Meanwhile the corporation tax rate for financial year 2014 will be reduced by a further one percentage point to 21%. Together this changes the overall tax mix, with the proportion of tax generated by income tax projected to rise by 2% over the next 5 years, from about 27.6% in 2012/13 to 29.6% in 2017/18.  In contrast, corporation tax, following the reduction in rates and the introduction of incentives, will fall by the same 1% - from just over 7% to just over 6%.  This shows that the government recognises the need to encourage business to create opportunity and growth."