With just a week to go before the new Chancellor of the Exchequer (it’s Jeremy Hunt in case you are not keeping up with recent developments !!) stands up in Parliament to deliver an Autumn Statement designed to fill the Treasury’s £40bn, sorry I meant £50bn, no its now £60bn, black hole – here are a few ideas which are likely to be on his tax raising agenda:
Coming in at odds of 2:1 are possible changes to Capital Gains Tax (CGT) rates which are now felt by many, to be too low at current rates of between 10% – 28%, depending on the type of asset you are selling – UK residential property sales liable to CGT attract the top rate of 28%.
So how will the CGT rates change?
If the Chancellor wants to keep the CGT rates simple and understandable (I thought that comment would make you smile?!) he will just add 10% to the current rates of 10%,20% and 28% – making them 20%,30% and 38% (we will ignore offshore trust CGT rates here); that should do the trick in terms of increasing the yield from CGT for 2023/24 onwards and he might even get a CGT windfall if he leaves the current rates in place until 5 April 2023.
I can see now the mad scramble for clients to sell assets (businesses, properties and land) ahead of the scheduled increases. It’s happy days for the Treasury when taxpayers know a tax increase is coming!
The more complicated way to increase the CGT yield for the Treasury would be to go back to a system which many taxpayers will have experienced before and that is where your capital gain is added to your taxable income and you then pay (effectively) an Income Tax rate on such gain at your highest rate of income tax – so for example if I have a taxable salary of £50k and then sell a buy to let property for a £25k profit I would be liable at a 40% equivalent CGT rate because my salary uses up all my basic rate tax band
I hope you are following this because under this method the rates of tax and methods of calculation become very complicated. You have been warned!
Next at odds of 3:1 is the continuation of freezing the Inheritance Tax (IHT) allowance called the nil rate band – currently £325k; this is usually done in this manner (technical term is “fiscal drag”) because this IHT allowance was already frozen by a previous Chancellor (Rishi Sunak from memory but I might be wrong – we have had so many Chancellor’s recently) until 2026 anyway – so why not extend the freezing exercise to 2036 perhaps?!!
The Treasury & HMRC have form in this area – with many IHT allowances (annual allowance, marriage gifts allowance and small gifts exemption to name just three) remaining frozen at rates set in the 1980’s!
So I might be a touch cynical here but a 20 year freezing (at least) of the major IHT allowance (nil rate band) would help to increase the IHT yield to record levels and hopefully capture more estates over this frozen period. What’s not to like when you have such a big black hole to fill.
Finally, at odds of 5:1 will the new Chancellor fall to the lobbying of many Social/Charity commentators and align tax rates on dividends with the normal 20%,40% and 45% Income Tax rates applicable to those taxpayers who are employees and subject to PAYE and NIC’s?
Current Dividend Tax rates are 8.75% (for basic rate taxpayers), 33.75% (higher rate taxpayers) and 39.35% (for additional rate taxpayers) so the Chancellor could be tempted to start an “alignment policy” if he wants to equalise the tax treatment between employees and owner managers (I am deliberately ignoring NIC’s here) .
If he does I worry that many business owners will decide there is little point in creating and building up a business if the rewards for creating jobs and wealth is so negligible. Lets hope I am wrong on this one.
Whatever the Chancellor decides next week the key issue for our clients is to be ready to take action in a possible “CGT window” – particularly if you were already contemplating selling an asset potentially liable to CGT. Also, whilst the freezing of the main IHT allowance for a further 10 years looks very likely.
Don’t forget that HMRC have still to put any restrictions on the multiple use of this allowance where you are able to make lifetime gifts, especially in later life or following a company sale.
If you need any further advice or support please contact me on: firstname.lastname@example.org or 07540 113289