Posted by Laura Kearns, Solicitor
Tax changes just round the corner?
The Autumn budget is fast approaching and, as usual, there is much speculation in the financial press as to plans which may be announced by the chancellor.
Though a date for the budget has not yet been set, it is clear that tax changes are likely to be afoot given the significant economic impact of the Covid-19 pandemic and the need for the government to raise funds to meet the country’s growing deficit.
It is widely thought that the tax most likely to be in Rishi Sunak’s sight is CGT. CGT rates (currently 10% and 20% for most assets; 18% and 28% for residential property) are at a historic low and so seem an easy target. A rise in rates, possibly bringing CGT in line with income tax rates, would be a relatively quick way to raise revenues as doing so would not require legislative drafting or lengthy consultation.
It is however possible that more extensive changes could also be announced. In July, Rishi Sunak commissioned the Office of Tax Simplification to investigate how CGT is paid by individuals and smaller businesses. The scope of the report is wide-ranging and will include all allowances, exemptions and reliefs, the treatment of losses and its interaction with other taxes (such as the current uplift on death). The OTS’ detailed comments are expected by 12 October and so it is possible that the budget, timing dependent, could seek to address some or all of any changes proposed.
The OTS also published reports last year on IHT, suggesting, amongst other proposals (1) removal of the CGT uplift on death and replacement with a no gain, no loss approach where IHT relief is available (2) an increased trading threshold for business property relief and (3) a simplification of the lifetime gifting rules. Again, it is possible that the budget could look to incorporate some or all of these proposals.
Mr Sunak’s leaked notes indicate that the government is aware it “will need to do some difficult things” and although “this doesn’t mean a horror show of tax raises with no end in sight”, it would be advisable for clients considering setting up trusts or passing value down to younger generations to take action now, before any tax changes make doing so more costly.
In addition to encouraging clients to forward plan, it is also worth reminding them of changes to CGT we saw earlier this year, most notably (1) modifications to Entrepreneurs’ Relief (which restricted the qualifying criteria further and reduced the lifetime allowance from £10million to £1million) and (2) that for sales of residential property from 6 April, gains must now be reported and any tax paid within 30 days.
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