A tax specialist believes announcing a one-year deferred increase to a key capital tax in the upcoming Budget could lead to an increase in certain economic activity.
Anne Rose, head of tax at Burgis & Bullock, isn’t expecting widespread immediate tax increases but an advanced announcement of Capital Gains Tax being increased for 2022 could be in the Government’s plans.
The Chancellor, Rishi Sunak MP, will deliver the first Budget since the start of the Covid-19 pandemic on Wednesday, March 3, with widespread calls from businesses for further business support to aid recovery from the pandemic.
Anne says the Chancellor is in an impossible position of needing to start the long path to balancing the books but also to support businesses and individuals so announcing an increase to Capital Gains Tax a year in advance could provide a windfall of tax income.
“It feels too soon for the Government to embark on a major revenue raising campaign and it would seem odd to hit businesses with tax rises in April, before some of them have been able to reopen again,” she said.
“Businesses I have spoken to want a focus on business support and regrowth, and initiatives to boost investment, consumer spending and activities like capital expenditure.
“There is always major speculation around Capital Gains Tax and Corporation Tax ahead of the Budget, as they weren’t covered by this Government’s famous triple lock on tax rates. The difficulty for the Chancellor is that the locked tax rates are on Income tax, NIC and VAT – the taxes that account for nearly 65% of fiscal income.
“Announcing an increase in Capital Gains now, with it not coming into force until 2022, would galvanise people to sell property and businesses and provide an immediate boost to the Government coffers, as people try to beat the rise.
“We have already seen individual business owners frantically trying to complete sales before March due to the possibility of an immediate rate increase.
“At the moment small business owners only pay 10 per cent on the first one million pounds of profit made on a disposal, if the Chancellor was to put Capital Gains up to 30 per cent with no reliefs then that is a huge difference.”
Tax specialists and advisors Burgis & Bullock has offices in Leamington Spa, Nuneaton, Rugby and Stratford upon Avon.
Anne, who has more than 25 years’ experience in providing tax advisory services, added: “We could see an extension of the VAT cut for hospitality and the stamp duty relief on property sales, both of which are due to expire on March 31.
“To boost investment there may be extensions to reliefs such as the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). For Income Tax, and perhaps even Corporation Tax, it’s probably too soon to start clawing back funds with the country entrenched in recovery.
“There are a small number of businesses that have done well out of the pandemic, but a lot of businesses have been negatively impacted and on top of that they are dealing with the Brexit fallout.
“By focusing on boosting and supporting economic recovery, it will get more people back into work and have a long term positive impact on government finances as they will be able to scale back state support.”