Both CGT and pensions could be targeted in the Budget

Gill Philpott

Gill Philpott

Another way to raise capital is not to increase tax rates but to reduce reliefs or allowances. The OTS made a recommendation to scale back the capital gains tax exemption to below £5,000, which would bring more taxpayers into the capital gains tax net, tax growth on wealth, and increase tax take. With online reporting of gains, this could be achieved with little extra work for HM Revenue & Customs.

Another area addressed both in the OTS, IHT, and CGT reports was the removal of the capital gains uplift in value on assets held at death that also benefitted from inheritance tax reliefs such as business reliefs. This would impact not only the business owners that benefit from this relief but all those involved in the financial advice market assisting clients with their IHT planning with the range of BR investment opportunities available. 

One benefit of the exit from Europe is the increased freedom to arrange tax incentives for smaller and medium-sized businesses, both to promote business investment but also individual investment. With the Enterprise Investment Scheme set to end in 2025, and with the tax advantages afforded to R&D, Seed Enterprise Investment Scheme and Venture Capital Trust investment, there is an opportunity to overhaul the tax breaks and promote investment in entrepreneurial businesses to generate business growth, employment, profits and taxes. 

This, together with the increased corporation tax rate that will be introduced from April 2023 and employer NICs being included in the NIC rates rise, demonstrates that businesses will be expected to contribute to fiscal recovery. Yet there is a fine balance between increasing the tax take and not stifling business growth.

Another perennial favourite on the pre-Budget watch-list is increasing tax take from pensions or reducing reliefs available. Again, the idea that those with more wealth, in this case earned, should bear a higher tax cost could be achieved by removing the higher rate tax relief on personal pension contributions.   

The March Budget, billed as 'Tax Day', saw the launch of a number of tax consultations, including those aimed at businesses. Following this, we know that on October 27 we will see the introduction of a tax on residential property developers, designed to meet costs associated with cladding remediation. 

Further consultations could be expected around wider tax reforms, but for now we will just have to sit tight and see what Sunak announces on Wednesday. 

Gill Philpott is tax and trusts specialist at Ascot Lloyd