Chancellor of the Exchequer Rishi Sunak has revealed plans to review the Capital Gains Tax, in order to fill the large gap in the budget that the government is currently facing.
In a letter to the Office for Tax Simplification, he said that he was interested in reviewing ‘how gains are taxed compared to other types of income’.
The announcement follows plans for the OTS to look into the current state of the system, in relation to the current economic climate.
A recent report from the Office for Budget Responsibility (OBR) forecasted that a COVID-19 triggered recession will create a budget deficit that could hit up to £322bn.
For many years, There have been claims from financial experts and city advisors that taxes – a levy on any profit made when selling an asset – are too low in comparison to current income tax rates.
Furthermore, there have been claims from critics that the government has not done enough to stop the wealthier members of society exploiting the current system.
Current income tax rates for those earning more than £50,000 p/a is 40%-plus – however, the average capital gains tax on the sale of extra assets (including shares, second homes and highly valuable possessions) is at 15%.
Following the ‘Summer Budget’ announcement by the Chancellor – which saw drastic changes to VAT and National Insurance – there are fewer options available for the government to raise funding.
OBR revealed that Sunak’s office is likely to suffer from a sharp decline in capital gains tax receipts over the next few years, as property and assets decrease in value due to the impact of the coronavirus pandemic.
Boris Johnson’s government has suffered from public anger after he suggested people should ‘clap for the bankers’ – in a move similar to the weekly NHS clap. This, for many, showed that he would not be open to various tax increases – especially for the wealthier households of the UK.
When the debate was brought up in the Commons, he said: “Our innovators, our wealth creators, our capitalists and financiers – because, in the end, it is their willingness to take risks with their own money that will be crucial for our future success.”
With further criticism around the relatively low funding the government received from corporation tax – and Tory MPS traditionally against tax increases for the richer members of society – it was previously highly unlikely for a Conservative Government to target the highest earners.
With the future of Capital Gains Tax still yet to be decided by the Chancellor and the government, there could still be further changes on the horizon.
Nathan Long, Senior Analyst at Hargreaves Lansdown hopes the government airs on the side of caution, and that no decision are made imminently.
He said: “Fears of a one-off raid on wealth to pay for the cost of the Covid 19 bailout did not come to pass either – although a review of all taxes on wealth including Capital Gains Tax, Inheritance Tax, Stamp Duty and Council Tax may still surface in the autumn. We’d like a system which incentivises people to invest well and for the long term and encourages wealth to trickle between generations. Any one off, knee-jerk raid on wealth would be hugely damaging to the fragile confidence of savers and investors.”
With the future of the UK economy looking evermore dreary, a drastic change might be the only way the government could counter any further economic troubles.
Nimesh Shah at tax and advisory firm Blick Rothenberg comments: “The significant Government support throughout the pandemic and the latest measures all come at a cost – the furlough scheme and Job Retention Bonus will cost over £100bn. There has been speculation that there will be a universal increase to income tax, higher capital gains tax, the introduction of a wealth tax and NHS surcharge. It’s inevitable that taxes do need to increase, and I suspect the Chancellor is saving that for a possible bleak winter.”