Experts believe changes to capital gains tax and pensions tax relief look increasingly likely after the Government committed to a five-year “tax lock” on income tax, VAT and national insurance.
In the Queen’s Speech last month, the Government committed to its pre-election pledge not to increase the taxes during the term of the parliament.
The Treasury has since confirmed the Scottish Parliament will still control income tax bands and rates north of the border from next April. The personal allowance will be set in Westminster, while national insurance contributions for self-employed workers will sit outside of the tax lock following a Budget commitment to review contributions.
Yellowtail Financial Planning managing director Dennis Hall says the restriction on income tax, VAT and national insurance will drive the Chancellor to look elsewhere for tax changes ahead of the July Budget.
He says: “CGT and tax relief for entrepreneurs could be targets.”
Currently, CGT is paid at either 18 per cent or 28 per cent, depending on whether the total of gains and income exceeds the basic income tax band after the tax-free allowance has been deducted.
Entrepreneurs pay tax at 10 per cent when selling all, or part of, their business, rather than the normal rate.
Hall says:“It would not alienate too many people depending on how the changes are implemented, but I’m not sure how much it would raise, either.
“And if the Government does not play with tax rates, it might take another look at relief for pensions instead.”
Cicero director and chief corporate counsel Iain Anderson agrees. He says: “This Queen’s Speech opens up the question of what happens with CGT and wider pensions relief.
“All of that stuff is going to be up for grabs, depending on how hard and fast the Conservatives want to go in terms of spending cuts.”
Partnership director of corporate affairs Jim Boyd says capital gains hikes would fit with the Government’s attempt to brand itself as a champion for all of the country.
Boyd says: “At the heart of good government is the practical realisation that governments need to be re-elected. And it’s certainly possible that this could be used as an argument that the people most able to shoulder the burden are doing their fair share.
“But the Conservatives have got to get the balance right here, because turning to something like CGT could be seen as to be penalising entrepreneurs who take extreme risks on the hope of long-term equity gain.”
The Queen’s Speech also committed to an EU referendum by the end of 2017, as well as new provisions on devolution.
The speech also set out plans for the Government’s “Northern powerhouse” initiative to introduce legislation for new powers in Northern cities with elected mayors.
It also hinted at the Government’s commitment to a triple lock on pensions, which the Queen said “would secure the real value of the basic state pension”. Right to Buy plans to give housing association tenants the chance to buy their home were also confirmed.