In scenes somewhat reminiscent of a pantomime, since Sunday we have seen a leak from the Treasury that meaningful capital tax rises are forthcoming, including income tax and capital gains tax rates being aligned. This was followed by the Chancellor on Tuesday preparing a meeting of MPs for tax rises, while on Thursday there were reports that backbench MPs would attempt to block tax rises if suggested in the Autumn Budget.
Which only adds to the increasing speculation as to the future tax climate in the UK, given the extent of tax reviews currently apace, including the capital gains tax review being carried out by the Office of Tax Simplification, at the request of the Chancellor, and the investigation into the possibility of wealth tax via the Institute for Fiscal Studies, a think tax. Separately, the Social Market Foundation, suggested over the summer that a 10% property capital gains tax should be applied to all homes sold in the UK.
It is only to be expected that in the current economic climate, with an estimated £300bn shortfall in public finances as a result of the impact of Covid 19, when considering the levers of money raising, tax increases are being actively investigated.
The interesting question is when and where. There is much debate as to when is the right time in the economic cycle to increase revenue through tax rises, and, for example, John Redwood, a Tory MP, has pointed to the increase in activity in the property market as a result of the stamp duty cut, as evidence that stimulation through tax reduction should be the approach in the short term. He stated 'As a result housing transactions have exceeded the pre-pandemic levels'.
The above notwithstanding, there have been suggestions that while the short term may not be the time for many tax rises, discrete changes to capital gains tax and corporation tax would meet less political opposition.
The most recent suggestions are that income and CGT rates would be aligned, meaning CGT rates of up to 45%, as against the standard 20% rate in place at present.
In this context the recent figures released last month by HMRC on CGT are interesting. These show that for the 2018/19 tax year, £9.5bn was raised from CGT from 276,000 taxpayers. Interestingly, the actual number of taxpayers decreased as the size of the gains taxed increased. Also of interest, just over 25% of CGT for the 2018/19 tax year was charged on disposals subject to Entrepreneurs Relief, which was significantly restricted in the March budget.
It is far from clear that an increase in CGT rates, particularly now, would raise meaningful tax.
Instead, given the small number of taxpayers subject to CGT and the need for investment and wealth generation in the UK, it is more rational to increase incentives for investment by, for example, a rational review of Entrepreneurs Relief and extending it to encourage genuine start up activity.
While it is interesting to consider where tax policy will end up in so far as the Autumn Budget is concerned, from a practical perspective it is more important to consider any immediate actions.
The possibility of CGT increases and/or the reduction of reliefs, and potentially even changes to IHT, all combine to encourage putting in place structures such as trusts and/or lifetime gifting sooner rather than later. Equally, if assets are standing at a loss, now can be a good time to gift and avoid capital gains that would otherwise apply. As part of this, for business owners, it is vital to ensure that this can be done swiftly - for example, do articles allow for the transfer of shares to family trusts, or the gift of shares to family members?
This planning can form part of a longer term governance discussion within a family about transferring and ensuring there is a family agreement about the stewardship of a family business for the next generation.
As a full service Private Wealth law firm, we are able to help with these decisions in the context of your personal and business priorities, as well as property transactions. For more information about how we can assist with generational transfer, please visit our COVID-19 hub page, as well as our approach to discussions around family governance.
As a result housing transactions have exceeded the pre-pandemic levels'.