Tax is increasingly under scrutiny given the Chancellor’s need to address falling revenues.
The recent report on the future of Capital Gains Tax (“CGT”) from the Office of Tax Simplification was one example of several recent papers from various bodies suggesting ways in which our tax system may need to change. It seems that the recurring question is not whether or not taxes will need to be raised, but when.
Increasing CGT may well be a relatively easy win for the Chancellor, as the rates are so much lower than those on income. Alternatives to raising rates themselves might include restricting the ability to carry forward losses. Other exemptions such as the ability to hold over gains in certain circumstances could also be scrapped, as could the existing automatic uplift on death. CGT, however, generates relatively little revenue for HMRC, although rates could still end up being aligned with income tax in the name of simplification. Inheritance tax (“IHT”) is another likely area for change, if only because a reform was already in the Chancellor’s mind. A flat-rate ‘gift tax’ is not out of the question; but perhaps more likely might be changes to relief on lifetime gifts, which are currently generally exempt from IHT.
Other options to raise revenue include a wealth tax, or a ‘solidarity’ tax on other income, either of which could be possible without breaching the Government’s manifesto tax lock pledge. Subject to investment decisions, some individuals may be considering accelerating planned transactions while rates are known and remain low. This is not without the risk that new rates may be different from those expected, or that changes are backdated.
The challenge for the Government, however is, how to raise revenues without stifling economic growth. Personal taxes on income risk damaging the economy more than, say, taxes on property and consumer taxes. Second homes could therefore be an alternative area for the Government to target, as indeed could VAT, although this would involve backtracking on the Manifesto pledge.
The form and timing of any changes is of course unknown, but the possibility that the focus on the tax system results in no changes seems remote. We should expect any new tax regime, understandably, to impose a higher burden on taxpayers in some form or another. The costs of the pandemic will, after all, have to be paid for somehow.
If any of these issues are pertinent to you or your business, or if you would like to discuss planning opportunities, then we have professional advisers with a depth of experience across taxation, financial planning and investment management.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
The tax treatment depends on the individual circumstances of each client and may be subject to change in future.
Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.
Smith & Williamson LLP is a member of Nexia International, a leading, global network of independent accounting and consulting firms. Please see https://nexia.com/member-firm-disclaimer/ for further details.
Smith & Williamson LLP is part of the Tilney Smith & Williamson group.
Registered in England No. OC 369631.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.