Taxes most likely to change revealed as Rishi Sunak balances the books after coronavirus

Taxes most likely to change revealed as Rishi Sunak balances the books after coronavirus

Tax increases are a commonly held worry among the nation’s workers and savers and coronavirus has only made those fears more prudent. Rishi Sunak and the wider government have launched several support measures in recent months and while they have been beneficial, they have created a huge debt that many feel will lead to inevitable tax rises.

The Treasury Committee noted all of this when announcing the inquiry, as they detailed: “The reconstruction of the economy after the unprecedented economic fallout of the coronavirus crisis is an opportunity for the Committee to examine the tax system.

“The Committee will look at what the major long-term pressures on the UK tax system are, what more the UK can do to protect its tax base from globalisation and technological change, and whether such pressures should be met with tax reform.

“The Committee will also seek evidence on what overall level of taxation the economy can bear, the role of tax reliefs in rebuilding the economy, and whether there is a role for windfall taxes in the post-coronavirus world.”

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What is likely to change?

Sophie detailed that an interesting tax alignment could be implemented following the inquiry: “We may see a greater alignment of CGT rates with income tax rates.

“This would certainly be a more politically acceptable way of raising revenue, given that a relatively small number of taxpayers actually pay CGT – fewer than 300,000 in the 2017-18 tax year.

“Importantly, it was also exempt from the triple lock promised in the Conservative manifesto for income tax, NICs and VAT.

“Trying to predict which reliefs could be reduced is more difficult. We already know that Entrepreneurs Relief has been massively reduced in the March budget and replaced by Business Asset Disposal Relief, which could also be reviewed, and a further change may be to extend the territorial scope indirectly, as seen recently with the extension of CGT to non-residents holding UK residential property.

“However, the government would be wise to take into consideration the need to retain and attract investment into the UK, so relief may be extended to a greater range of UK assets.”

She went on to highlight how death could be factored in, noting the opportunity to reform another well-known tax: “Some have speculated on the abolition of rebasing on death.

“A sensible approach would be to accompany this with a return of indexation relief, to accommodate for inflation, or a reform to inheritance tax.

Regardless of what actual changes are introduced, people are likely to only be concerned with how they’ll be affected.

In anticipation of this, Sophie provided some guidance on what preparation can be made.

How can people get ready for the changes?

“Gifting”, an element of inheritance tax planning, can also be used for CGT as Sophie concluded: “After the past four turbulent months, now would be prime time to put in place any gifting and succession plans that are yet to be completed.

“Taking into consideration the current relatively low rates of CGT and potentially low asset values, people should look to implement any lifetime planning and gifting imminently, by identifying assets standing at losses or low gains and consider the best structures.

“It is possible to transfer assets into a trust or other controlled succession structure now, and combine the favourable CGT environment with, for example, inheritance tax reliefs for business property, and set up a family succession vehicle very tax efficiently.”

Published at Sun, 09 Aug 2020 03:00:00 +0000