The government has spent significant sums during the COVID-19 crisis and is now faced with an enormous deficit which must be repaid. The Chancellor has some difficult choices ahead, especially within the tax system. This is a historic opportunity for sweeping reform to problematic areas of the UK tax system.
Tax rises seem inevitable, but aside from national insurance ‘alignment’ for the self-employed, the government is under pressure to go easy on business to ‘kick-start’ the economy. Therefore, many believe a large share of the burden will fall on wealthy individuals.
The Chancellor has written to the Office for Tax Simplification (OTS) to undertake a review of CGT. In particular he has asked for comments on the operation of exemptions and reliefs as well as whether the present rules ‘distort behaviour’.
There are also wider calls to the professional bodies to comment on the interactions of taxes and ‘how gains are taxed compared to other types of income’.
One quick fix would be to align the tax rates charged on gains (10%, 20%, 28%) more closely with those charged on income (20%, 40%, 45%).
Regarding reliefs, the Exchequer’s second most costly relief is Private Residence Relief, which exempts people from paying CGT when they sell their main home. The National Audit Office found the relief was worth £26.7 billion in 2018-19 and despite the political cost, it would be easy to introduce a lifetime allowance such as we see with Entrepreneurs' Relief. We also fear that the historic link between Inheritance Tax and CGT base cost for assets passing in death may soon be broken.
At the other end of the scale individuals have a CGT allowance (currently £12,300), which might not survive unscathed for higher and additional rate payers.
Could a ‘one off’ wealth tax now become reality in the UK? Sunak has indicated that he would prefer to raise money from current rather than future taxpayers and such a policy has some history in European economies following a period of war.
Crowe will be responding to the OTS’s call for evidence before the deadline of 12 October. Individuals can also send their response to: [email protected].
For more information on the topics discussed in this article get it touch with your usual Crowe contact.