Will they collect more tax if they again align the rates of CGT and income tax?

“Increases in capital gains tax are inevitable now, despite doubts expressed ten years ago”, says Mark Lee, Chairman of the Tax Advice Network.

On 13 July, the Chancellor asked the independent Office of Tax Simplification (OTS) to undertake a review of Capital Gains Tax (CGT) in relation to individuals and smaller businesses. “The publication of a full scoping document on 14 July, just one day after a formal request was issued, suggests the request was no surprise.” Says Lee. “So, as the Sunday papers predict today, we are likely to see increases in the next Budget”.

The wording of the letter references capital gains as being a type of income. “This is odd language” says Lee, “as the Chancellor must know that CGT doesn’t tax income. By definition CGT taxes capital gains. That’s the increase in the value of your investments – and CGT is only charged when you realise those gains by selling your investments – things like second homes, shares, paintings and so on”.

“No one wants to say it but increasing CGT makes good political sense” says Lee, who was himself a tax adviser for 25 years.  “I remember discussing this very point with Sir Edward Troup at a tax conference in 2010.  Back then he doubted that aligning the rates of CGT and income tax would increase the tax take from CGT. I wonder what has changed?”

There are many exemptions and reliefs from CGT and an annual exemption. This means that the first £12,300 of capital gains anyone makes each year is tax free.  This rule simplifies things for the majority who cannot make significant capital gains.

Notes for editors:

1. Mark Lee is a Fellow of the ICAEW and of the CIOT. He is a former tax partner at the accountancy firm BDO and a former Chairman of the ICAEW Tax Faculty.

2. The Tax Advice Network, launched in 2007, operates the FindATaxAdviser.online website and has members all over the UK.

3. In May 2010 George Osborne, Chancellor in the new Coalition Government, announced that he would “seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities. In his Budget on 22 June 2010 he raised the top rate of CGT to 28%.

4. Mark Lee’s subsequent conversation with Sir Edward Troup is recorded on the Tax-Buzz blog entry 5/7/2010: “CGT rules unlikely to change again in this Parliament”.

5. In 2010, Troup was Managing Director of the Budget Tax and Welfare directorate at HM Treasury. He later became Executive Chair and First Permanent Secretary of the HM Revenue and Customs (HMRC) in April 2016. He retired in December 2017, and was knighted in the 2018 New Year Honours.

6. On 13 July 2020 The Chancellor of the Exchequer, Rishi Sunak, asked the OTS to carry out a review of Capital Gains Tax to identify simplification opportunities. The scoping document for the review was published on 14 July 2020.

7. The rate of CGT has changed over time since it was first introduced in 1965. Until 1988 it was fixed at 30%. Then for 20 years CGT was payable at income tax rates, as if it was additional income (but with it’s own set of reliefs and exemptions). It was a Labour Chancellor, Alastair Darling, who reduced the top rate of CGT from 40% (when it was aligned with the then top rate of income tax) to 18% in 2008. In recent years the top rate of CGT has been 28% whereas the top rate of income tax is now 45%.

8. Lee questioned the rationale for reducing the rate of CGT in an article on his Tax Buzz blog on 5/2/2009: Why are capital gains taxed at less than  half the main rate of tax?

 


Inheritance tax receipts fall. Does this make a wealth tax more likely?

Inheritance tax (IHT) seems to worry far more people than are ever likely to pay it. The latest stats reveal why the Government and HMRC may be planning to switch to a wealth tax instead.

The most recent figures available tell us that fewer than 4% of UK deaths resulted in a charge to IHT. And that HMRC received only a little over £5 billion inheritance tax in 2019/20.

Earlier this year an all-party parliamentary group proposed the wholesale reform of IHT and intergenerational fairness. Their main recommendation was to replace IHT with a flat-rate gift tax payable both on lifetime and death transfers. As ever such proposals are easier to accept in theory than they would ever be to legislate.

And let no one assume that a wealth tax would be easy to apply and charge by reference to shares, properties and other assets whose values are ever changing.

Many of the members of our Network are expert advisers on inheritance tax and related issues. YOU’ll find their profiles by entering inheritance tax in the search bar on the home page of this site


VAT Office tells caller to ring the Tax Advice Network

When people call our switchboard they are normally put through to whichever of the tax advisers they have chosen from our website.

Around 4.30 today a caller (Tina) was put through to me as my assistant was unable to determine what she required. Tina offered to quote her enquiry number to me. I thought maybe she had called us by mistake. Perhaps our number is very similar to an HMRC office. But no, she had called the number she’d been given by the local VAT office!

(Given the rate at which HMRC are shedding staff at the moment I wonder if the day will come when there are more tax advisers within the Tax Advice Network than left in HMRC?!)

Once we had established what had happened, Tina was equally confused as to why HMRC had given her our number. She thought it was because no one at HMRC was able to resolve her enquiry and they wanted to get rid of her.

This seems unlikely to me. Tina is a bookkeeper for a client in the catering industry and wanted clearance as to whether certain supplies were zero registered. She’d been told to go to a specific page of HMRC website but had been unable to find the relevant contact details thereon. It took me less than a minute to do so. Why had the person she spoke with at HMRC been unable to assist her? Maybe they don’t have access to a computer?

I also questioned whether the clearance facility was really what Tina wanted. I suggested that if she wanted help with a formal letter or anything that involved more than a few minutes on the phone, she should speak to one of the VAT specialist members of the Tax Advice Network.

I’m not complaining – indeed I’m thrilled – that HMRC are directing people with complex tax problems to the Tax Advice Network. Thank you to whoever it was and by all means do it again.