At its recent conference, the new government has given little away about its plans for the upcoming October budget. Those trying to plan have been forced to rely on rumours and oblique references to ‘tough choices’. Nevertheless, it is clear where change is likely to be targeted, and the potential options open to the government.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
What we know
The Treasury says it needs cash. The new government may be making political capital out of a £22bn ‘black hole’, but it is clear that the UK’s finances are in poor shape. That means some tax raising and cost-cutting measures are necessary. However, the government has said these will not come from the ‘big three’ taxes – VAT, income tax or national insurance. Together, these three taxes bring in 57% of all government revenue*.
Some measures have already been announced. Private school parents are already counting the cost of the imposition of VAT on school fees from January. The Winter Fuel Allowance has been shelved for most pensioners. There will be continued windfall taxes on the oil and gas giants. However, the fear is that all the talk of black holes is laying the ground for more tax rises elsewhere.
Nevertheless, some pragmatism is required about tax-raising measures. The amount raised from Capital Gains Tax (CGT) has risen significantly since the government cut the rates of CGT. The CGT bill is paid by a tiny number of taxpayers – 41% of CGT came from those who made gains of £5 million or more. If rates go up, they may simply hold onto their assets*. The government needs to balance its enthusiasm for raising the level of a tax paid only by the wealthiest, and actually raising some revenue.
The same is true for inheritance tax. It is only paid by a relatively small part of the population. The government needs to ensure that any changes to the rates paid would actually raise revenues, rather than encouraging investors to take increasingly elaborate steps to avoid it.
Equally, the government needs to balance any tax-raising measures with its growth agenda. Anything that deters investment could reduce financial resilience, and stall funding for British businesses. This would fly in the face of the government’s stated desire to attract more investment for UK companies. Any measures need to preserve support for the UK’s capital markets.
