Following the return of parliament after the summer recess, the speculation around future tax rises has gone into overdrive as the government looks at how it can recoup some of the cost of the coronavirus pandemic.
It has been suggested that the Treasury wants to generate £20bn from increased tax revenue, but this amount pales into insignificance when estimates put the present cost of Covid-19 at around £300bn.
It is also arguable whether the Autumn Budget is the right time to introduce tax increases — after all, we are still in the middle of a global pandemic.
With the economy so fragile and jobs on the line, UK chancellor Rishi Sunak and the government need to be very mindful about drastic changes.
It remains an incredibly uncertain time, as we enter the crucial winter trading period and businesses will be looking over their shoulder as the furlough scheme comes to an end.
The government also needs to consider the international outlook with Brexit firmly on the horizon, and Mr Sunak needs to be mindful of inward investment from a corporate and private wealth perspective.
It is inevitable that the government will need to increase taxes in the future, and this is my run down on which areas of the UK tax system could be under review.
Capital gains tax
There has been speculation for some time — even prior to the pandemic — that CGT rates would increase.
The headline rate of CGT of 20 per cent is considered to be very favourable, and there are growing calls that it should be increased to 28 per cent across the board or possibly aligned to income tax rates (up to 45 per cent).
The threat of an increase to CGT was compounded further by Mr Sunak asking the Office of Tax Simplification to offer its proposals on simplifying the tax.
The latest statistics from HM Revenue & Customs show that the Treasury generated £9.5bn in 2018–19. This was a record year for CGT receipts, but represented only 1.5 per cent of the total tax take. Any rate increase is unlikely to make a significant impact on overall tax revenue.
Key Points
- The government has to raise money to pay for Covid-19 relief
- Income tax is a likely target for tax rises
- Capital gains tax in main residence is on balance not likely
It is also worth noting that there has already been a CGT increase this year when Mr Sunak, in his first Budget as chancellor, cut the entrepreneurs’ relief lifetime limit from £10m to £1m, costing an affected taxpayer £900,000 in CGT.
There is a compelling argument that CGT should be abolished completely as part of the wider reform of capital taxes and the fact it raises so little in overall tax revenue. However, this is highly unlikely from a political standpoint.
Politically, it is a very easy move for the government to raise CGT and sends the right message that the wealthy — who pay CGT — are taking on a higher tax burden.
Inheritance tax
Over the past 10 years the government has been trying to look at ways to raise more tax revenue from IHT.
