Is it time for a reform of UK taxation on capital? Much speculation surrounds the future of key capital taxes, capital gains tax (“CGT”), inheritance tax (“IHT”) and a potential wealth tax. If changes were to be implemented this could have an significant impact on individuals and their families.
Possible changes include the alignment of CGT rates (currently at main rates of 10% or 20%) with income tax rates (currently at an additional rate of 45%) reforms to IHT and the introduction of a wealth tax.
Changes to the taxation of capital may be introduced in response to calls for simplification, modernisation and to help pay for Covid-19 measures. These could be made in the short, medium and long-term and could shape the taxation of individuals in the UK for generations to come.
Although there were no announcements of changes to, or reform of, capital taxes in the Spring nor Autumn Budgets, it’s possible that there could be further announcements in the future, possibly in a second Tax Day expected in the Autumn.
Who could these changes impact if introduced?
Increases to CGT rates could impact entrepreneurs, private equity, shareholders, family businesses, landlords, employee shareholders, family offices, investors, senior management and those with accumulated personal wealth.
Reforms to IHT may impact wealthy individuals and families. Specifically, given the proposals in relation to IHT reliefs and CGT rebasing, there could be an adverse impact for family businesses.
If the Government chose to introduce a wealth tax in the UK, the impact would depend on the threshold set. Based on the Wealth Tax Commission’s report issued in December 2020, the threshold could be set at £500,000 per person to include shares, cash and property. Those liable may be subject to a one-off tax charge at a rate of between 0.01% and 5%, potentially spread over 5 years.
