Simon Allister, Head of Wealth Planning
It seems that not a week goes by at the moment without the release of a new report tackling potential proposed changes to the UK tax landscape. The most recent, and the most widely covered in the media, has come from the Office for Tax Simplification (OTS) who published the first of two reports into their review of Capital Gains Tax (CGT) last week.
Whilst the OTS report may have stolen most of the headlines – the most significant recommendation being the alignment of CGT rates with income tax (although they recognise there are practical issues with this) – it is by no means the most interesting nor the most radical.
For example, another think tank, the Resolution Foundation, has interestingly just published a November Report putting forward various tax change proposals. The most notable being:
We also await the recommendations of the Wealth Tax Commission who are due to issue their final report on the 9th December. Most commentators have seen the UK implementing such a significant sea-change as a step too far, despite the clear need for the Chancellor to raise revenues over the longer term. Perhaps the commission may think differently? Whilst none of these reports are official publications from the Government, OTS recommendations in particular tend to capture the attention of the Chancellor.
What is clear is the general direction of travel. The balancing act for the Chancellor will be to raise revenue to repair public finances without doing it so soon so as to hamper any economic recovery. It will also be important to strike the right balance to maximise overall tax take. On this latter point, opinions differ as to whether more closely aligning CGT with income tax will achieve the revenue raise that the Government would be hoping for. The Treasury has previously published data that indicates revenue losses from people holding onto their assets (so as to avoid the higher tax charges) would outweigh the actual benefits of a significant tax rise. This was the rationale for the coalition Government ultimately plumping for 28% as the 'optimal' rate for tax take back in 2011.
In the grand scheme of things, CGT is a relatively small tax, collecting less than £10 billion in tax year 19/20*. Despite this, for those individuals who may be impacted by the new proposals, the additional tax cost could be substantial.
Ultimately, the fragile state of the economy will probably push the spectre of significant tax changes into 2022 and beyond. In the meantime, it makes sense for individuals to consider their finances within the context of what may be around the corner. Whilst it is not sensible to make irrevocable decisions based purely around speculation, it is also not practical to completely ignore how this direction of travel could impact you.
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