Reform to capital gains tax, a solution to pensions tax relief issues and a simplification of inheritance tax could all be explored by the chancellor on 'tax day' next week, industry experts have suggested.
On March 23, which has been dubbed “tax day”, HM Treasury will announce a raft of new consultations on proposed taxation reforms.
Therefore, advisers may still have to navigate tax reforms which are introduced to pay for the Covid crisis.
According to industry experts this could see changes made to capital gains tax, inheritance tax as well as solving long-running issues in the pensions space.
Reform to capital gains tax has been on the cards ever since Rishi Sunak commissioned a review into CGT by the government's Office for Tax Simplification last year, saying he was particularly interested in how the levy interacted with taxes on income.
As the OTS has already backed the idea of aligning CGT and income tax rates, it would be “no surprise” to see this picked up by the Treasury next week, Tom Selby, senior analyst at AJ Bell said.
However, he noted that the Treasury has said any announcements will not have fiscal implications, meaning the most we can likely expect is a consultation or call for evidence rather than concrete proposals for reform.
Neil Jones, tax and wealth specialist at Canada Life, said CGT needed to be simplified but he was aware the OTS hadn’t published its second report into this area so big changes may not be coming just yet.
Jones said: “Minor variations, such as increasing rates, will only be dabbling. The government needs to set out a clear policy objective so that it can identify the taxpayers it wants to target, only then can it build an effective tax system.
“Arguably more consideration needs to go into how to transition from the current system to a new one and consultations can help with this.”
Meanwhile, Steven Cameron, pensions director at Aegon, said any reform of CGT would “present some complex trade-offs” between different groups affected and the Chancellor may decide to formally consult on this.
Pensions tax issues
There are a few outstanding issues with pensions which industry experts have said need to be addressed by the government.
One of these is the net pay anomaly which occurs in the pensions tax relief system and means low earners are missing out on a 20 per cent boost on their pension contributions if their scheme operates a net pay arrangement, which is the case with the majority of pension funds in the market.
In July, the Department for Work & Pensions published a 40-page call for evidence which presented the options being considered to address the difference in outcomes between net pay and relief at source pension schemes, as announced at the Budget.
Selby said tax day could present an opportunity for the government to set out a way forward and consult on the practical challenges that need to be overcome.