The Chancellor’s budget will be announced on Monday October 29th – and with healthy tax receipts over the past five years from Stamp Duty, CGT and IHT, commentators are expecting to see further hikes in tax rates.
The three taxes combined brought revenues of £25.4 billion to the Treasury this year, according to The Times – an increase of £10.7 billion compared to 2013. By contrast, overall tax receipts rose by just 26 per cent. Other taxes that have proved prosperous include £1.1 billion extra from the climate change levy and £3.1 billion from the insurance premium tax.
The Chancellor recently told the BBC that: ‘we will have to find a little more, each of us, to… expand our NHS to meet the needs of an aging population.’ With healthy income streams from these sources, the Chancellor is likely to be looking closely at whether they offer further revenue potential.
Current inheritance tax rules can be difficult to understand. Everyone gets a £3,000 annual limit which can be rolled over for one year and on top of that, they can make an unlimited number of small gifts up to £250 in value to those who have not already benefitted from a larger gift. There are further wedding gift allowances and additional allowances for gifts made out of excess income.
These rules could be simplified into a single annual gifting allowance which some commentators have suggested should be £10,000. Although this would certainly be simpler, the lesser known allowance that lets people give away income they don’t need would be a significant loss in estate planning terms.
Additionally, or alternatively, the Chancellor might consider charging inheritance tax on inherited pensions. Currently a defined benefit contribution pension can be passed on free from inheritance tax with the proviso that if the Deceased is over 75, the beneficiary may have to pay income tax. This allowance has been described by the Institute of Fiscal Studies as “indefensibly generous”.
The Institute has also suggested that a CGT might be introduced for assets on death – lessening the likelihood that people hoard their assets rather than give them away during their lifetime. Whilst CGT rates are currently between 10% and 28% on gains, any liability ‘dies’ with a person. Changing this position would make estates subject to both inheritance and capital gains charges.
The Government’s initiative to slash stamp duty for first time buyers came into effect November last year. Under the new rules first-time buyers pay no stamp duty on properties worth £300,000 or less. For properties worth £300,000 to £500,000, stamp duty is not payable on the first £300,000.
From August 2013 to August 2018, stamp duty brought revenues of £4.84 billion according to the Times and it is one of the Treasury’s most lucrative taxes. With savings handed out for the lower end of the market coupled with a slow down in sales, the Chancellor may decide to increase stamp duty at the top end.
Those buying buy-to-let or second homes have already suffered from the 3% increase in duty since 2016 and commentators don’t expect this to change. However, the idea of an additional tax for overseas buyers has been considered which could be in the region of 1-3% on top of the current rates. This would increase revenues by up to £120 million a year. Industry experts are concerned that such a rise would discourage overseas investment, thereby hindering development.
Over the past 5 years, there has been a 99 per cent rise in capital gains receipts, largely due to a bullish market benefiting investors. These gains have been achieved despite a cut to the top rate of CGT from 28 to 20 per cent, and a similar reduction in the lower rate from 18 to 10 percent (excluding residential property gains).
The annual CGT allowance has risen (£11,700 for the 2018/19 tax year) but this doesn’t reflect the rise in asset prices, which is why CGT revenues have grown despite the lower rates. Commentators think a generous rise in the CGT allowance is unlikely.
One proposal that may be on the cards is for landlords to be given a tax break where they sell their property to long-term tenants. Think tank Onward has put forward the idea, suggesting that where the property was sold to a tenant who had occupied for more than three years, there could be 50 per cent relief on CGT. The remaining 50 per cent could be given to the tenant by the tax office.
It is not clear whether, under the proposal, just half the gain made would be taxable, or whether the whole gain would be taxable at 14 per cent instead of the usual residential property rate of 28 per cent. In either case, the amount of tax paid could be different, depending on the landlord’s individual tax circumstances. Further if the landlord had made no gain, there would be no 50 per cent credit to assist the buying tenant.
Another issue arises as to when the tenant receives the credit – would this be when the Landlord pays the CGT? If so, this could be many months after the tenant elects to buy, and therefore may not help the tenant with their purchase. Clearly, although this seems at first glance like a great incentive to help private tenants onto the housing ladder, there are practical difficulties that would need careful consideration.
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