How will President Biden’s democratic tax reforms impact tax rises in the UK?
President Biden’s democratic tax reforms could see tax rises in the UK, say tax and advisory firm Blick Rothenberg. Robert Pullen, a tax partner, spoke to Business Leader about this issue.
With the focus shifting to how to pay for the costs of the pandemic, there will be many in Government looking for excuses to put up taxes without upsetting their core voter base. President Biden’s proposals are the perfect excuse, and I would expect Boris Johnson or Rishi Sunak to piggy-back off the tax-hikes recently announced.
One of the stand out US tax proposals is for a capital gains tax rate of close to 44% (including net investment income tax) for individuals who have taxable income of $1m or more. This is more than double the UK capital gains tax rate of 20% (for most assets). Capital gains tax has long been suspected as the number one target of Rishi Sunak – expect this rate to move closer to the US proposed rate in the next Budget later this year, possibly around 30%.
The UK conservative government is renowned for low-taxation policies, but the coronavirus pandemic following a prolonged financial crisis has led many to speculate tax increases could be coming. The biggest barrier – global tax competition – now seems to be fading with President Biden’s distinctly democratic tax reforms on the agenda. The G7 summit has probably added to this changed dynamic, with world leaders meeting in Cornwall discussing the newly announced global minimum corporation tax rate.
Another eye-catching US proposal will affect inherited assets. This is an echo of a proposal made in the UK in 2020. Last year, a number of reports were produced which suggested reforming UK inheritance tax as well as how that tax interacts with capital gains tax.
A large target was seemingly the way assets inherited take-on the value at the time as their cost going forward, which means that currently if you inherit an asset, you do not pay capital gains tax when you sell it, unless it has increased in value since then. The suggestion made was to abolish this rule – effectively introducing double taxation (first inheritance tax at 40%, then capital gains tax on sale at 20%). For obvious reasons this is hugely controversial, but many will be asking now the US are doing it, why not the UK?
Individuals considering estate and wealth tax planning will need to be mindful of these radical tax ideas crossing the Atlantic – UK tax rises a few years ago would have been unheard of for a newly elected majority conservative government. The coronavirus and President Biden are changing that dynamic.