In Q2 2020, HMRC received tax payments were down 35% compared to Q2 2019. Whilst in the same period, central government spending increased 40% year on year, forcing the government into borrowing to bridge the gap. The Office for Budget Responsibility recently estimated that the UK government would need to borrow at least £372 billion this year to top up what will be received from taxation to meet public spending needs.
One option to reduce debt is to cut public spending (austerity), however, this is generally unpopular with voters. A recent YouGov poll showed that 47% of respondents preferred tax rises, with just 27% favouring cuts to public spending.
As a VAT increase is unlikely, Capital Gains and other wealth taxes are the most likely areas to be targeted to help shrink the deficit in public finances.
Business Asset Disposal Relief (Entrepreneurs Tax Relief)
The March 2020 budget saw an immediate change to Entrepreneurs Tax Relief reducing the lifetime limit from £10 million to £1 million at the more favourable CGT rate of 10% to be paid when disposing of all or part of a business. The remainder of any assets above £1 million will be taxed at the standard rate of 20%, for any qualifying disposals on or after the 11th March 2020.
Now, there are increased rumours of a complete overhaul of CGT following an in-depth review by the Office of Tax Simplification on whether the current system is fit for purpose. This is due to be completed by October 12th ready for the Autumn budget meaning any changes could take effect with immediate action.
The Chancellor, Rishi Sunak, recently wrote: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.
“In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
Tom Baptie, Head of Vesta Finance, commented “Whether the potential changes come in the form of flat rates, rises or the scrapping of the relief altogether, there are fears that this could put a dent in what, for many, is a retirement fund for the future. We would advise people considering an exit in the near future to act fast to avoid any further reductions.”
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