The chancellor has signalled a willingness to reform the tax system – he might want to consider capital gains tax as a start, says Kate Aitchison.
Capital taxes are complex, and there is inconsistency in the way they apply to businesses, leaving some businesses liable to pay them when others are not.
Last week (March 23) chancellor Rishi Sunak delivered his Spring Statement against a backdrop of rising living costs, high taxes, and rapidly rising inflation.
The government announced a future cut to basic income tax, and raised the threshold for national insurance payments to £12,570, same as income tax. It also outlined plans to reform the "over 1,000 tax reliefs and allowances in the tax system" to make the tax system "simpler, fairer and more efficient".
Kate Aitchison, private client tax director at RSM UK, tells FTAdviser why now is the time to reform capital taxes and what advisers should be aware of when it comes to passing on their business.
FTA: What is your overall assessment of the Spring Statement?
KA: Perhaps the scale of the tax announcements was a bit more than I was expecting.
I think a few people had wondered whether something more might have happened around VAT. It was certainly looking like that in a speech about a month ago [outlining plans for] capital, people and ideas. It felt very much that that was going to be the strategy and the agenda going forward. Looking at trying to grow entrepreneurship, looking at the private sector, trying to build growth coming back into the economy.
FTA: The chancellor has said he wants to be a tax-cutting chancellor. Is he?
KA: I think he'd like to be, there's obviously some rate changes that have been announced. Certainly with the income tax changes that will be coming hopefully in a couple of years' time. I'm not sure on balanced he has been. There's the health and social care levy, and the corporation tax increase due to come in next year is quite a significant increase from 19 per cent.
TA: The government has shown a willingness to reform some of the tax reliefs in a tax plan published alongside the statement. Where should it start?
KA: There's been a lot of discussion in the run up to Budgets, and in the run up to the Spring Statement whether there will be anything more fundamental from a capital taxes perspective, whether rates will go up or whether the reliefs might change.
Things like inheritance tax and business property relief and the interaction with CGT reliefs, they're quite different structurally. You can have a business that will qualify for IHT relief but wouldn't qualify for CGT relief, and it just seems quite inconsistent that you can qualify for one but not the other.
The Office for Tax Simplification report last year suggested a number of changes to reliefs and changes to CGT generally, which I think was accepted across the board as being relatively sensible – there was nothing too controversial in that.