A report commissioned by the government suggests a doubling of Capital Gains Tax on profits from the sale of second homes.
The government - which received the report yesterday from its own Office for Tax Simplification - is keen to stress no decision has yet been taken about whether to implement the proposal.
About £14 billion could be raised by cutting exemptions and doubling rates, according to the review, which was set up by Chancellor Rishi Sunak.
In July Sunak asked the OTS to carry out a review of CGT to “identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.”
In particular, Sunak wanted a probe into "the acquisition and disposal of property" and "the practical operation of principal private residence relief".
Now the OTS says the tax could be doubled, made simpler in its structure, and brought roughly in line with income tax.
"The disparity in rates between Capital Gains Tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains" the report claims.
The OTS’s consultation - which received over 1,000 responses - revealed a range of areas in which Capital Gains Tax is apparently counter-intuitive and creates "odd incentives." Some respondents argued that CGT is a barrier to economic growth, others that it is a barrier to a more equitable society.
The government is under no obligation to implement the recommendations and a spokesperson for the Treasury says: "The government's priority right now is supporting jobs and the economy. We thank the OTS for their independent report which will be considered in due course.”
A second element to the OTS report, which will follow early next year, will explore technical and administrative issues.
Only 265,000 people pay tax on capital gains each year; the report suggests 50,000 of those arrange their financial affairs so the CGT liability comes under the £12,300 exemption allowance which each person has under current tax rules.
The OTS claims most capital gains are concentrated among relatively few taxpayers paying "proportionately less" tax than the rest of the population.
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Luckily, the OFT is anything but able to simplify the tax maze that exists, and as it is a feasibility report, rather than a statute, I think this type of taxation is a long way off. It is natural with the huge sums of money being pumped into the financial system, that the ever smiling populist chancellor will be looking at a plan B to balance the books, but my thoughts are 'unpopular' headline tax interventions, even if they hit only a fractional amount of people, can do a huge amount of damage, as there is always an equal reaction to circumvent any known change to tax rules.
Absolutely
One thing the USA does well is your domicile is tax deductible.
Capital gains tax on investment properties if you sell is smart.
Don't sell don't pay
So, this will affect who? Those who are financially illiterate, that's who. A second home should never be sold because we are not taxed on debt. Just draw down the cash as needed and retain the property which will inevitably rise in value and/or produce a monthly income.
This would just convince some to sell up and others not to buy, the rich will hold on unaffected.
A Flat Tax of 10% on everything , vat 10% , income gross 10% , no allowances or exemptions , no accountants needed , no black market , if a tax is low people find it fair they won't try not paying it .
They wouldnt be able to introduce this until at least April 2022, more likely 2023 unless they want to be challenged in the Courts. Many landlords won't be able to gain possession until then based on current forecasts on court backlogs and section 21 notices being 6 months with no end to that in sight. HMG can't impose an increase in tax on an activity when they have effectively prevented landlords from engaging in that activity before any deadline to change it.
When you then consider that there is a GE in 2024, would any tory government want to overtly alienate a couple of miilion of its core voters in the run up to the election? Tory spin doctors will have one eye on the election and discussions will already be under way about the timing of tax increases, which they wont want to be doing in 2023-4, they will be too fresh in peoples minds at the ballot box. Sector targeted tax rises will have to be 2021, 2022 at the latest to allow people to forget, or instead be spread over most of the population to neutralise political fall out and create a feeling of acceptance as everyone has to pay it. One suggestion I saw floated today by a think tank was a temporary covid health tax of 3-4p in the pound on income over £12,500 for a few years. Tugs at the heart strings a bit as well. What we can be certain of though is massive tax increases across the board in June 2024, as the new administration will have a new 5 year mandate to do what it wants as they did in 2010, 2-3 years after ground zero.
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