TaxPersonal TaxBudget 2002: Widow of opportunity

Budget 2002: Widow of opportunity

In this year's Budget the increase in national insurance hit the headlines along with the rise in employers' contributions. But the more obscure implications - such as the disproportionate increased tax burden on widows - are only beginning to emerge ...

Even two weeks after Gordon Brown delivered his Budget on the floor of the House of Commons, experts are still wrestling with some of the hidden effects of the chancellor’s financial measures.

The one percentage point increase in national insurance for taxpayers on all their income hit the headlines, as did the rise on employers’ contributions. But there were more obscure implications that are only just beginning to emerge.

One week after the Budget, ACCA issued an angry press release about the effects of the increase on the contributions paid by widows. The institute’s head of tax, Chas Roy-Chowdhury, said widows and older women would faces ‘huge and disproportionate’ increase in national insurance.

The explanation was that women who chose to rely on pension provision through their husband’s national insurance contributions at a rate of 3.85%, would also suffer the single percentage point rise. This means that while the rest of the population would face overall national insurance increases of 10%, widows and older women would have to find 26% extra.

Roy-Chowdhury said: ‘This extreme and disproportionate increase for those currently paying the lower rate is grossly unfair and is a case of the government wishing to wring as much money as possible from everybody – even widows and older women.’

In the immediate aftermath of the Budget, there were many complaints that the chancellor is not altogether explicit about his measures in his speech. Indeed this issue has become a central tenet of the Tory party’s attacks on the government.

Shadow chancellor Michael Howard attacked Gordon Brown in a speech at the beginning of the month saying: ‘We have become accustomed to the phenomenon of discovering after the Budget statement that some very important measure has been buried in some obscure footnote.’

This is the kind problem that causes the government to be accused of introducing ‘stealth taxes’. This cropped up again when, seven days after the Budget, Ernst & Young began complaining about stamp duty changes.

The reform would see the full 4% property rate charged on transfers of substantial interests in companies and other organisations owning land.

Disposal of shares usually attract a stamp duty rate of 0.5% regardless of what assets are owned.

Kevin Griffith, a stamp duty specialist at Ernst & Young, said: ‘This proposal is dressed up as an anti-avoidance measure but really it’s a revenue-raising measure.’

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