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A review of capital gains tax has been launched, prompting suggestions that Rishi Sunak will target the rich to help plug his vast budget black hole.
The Office for Tax Simplification (OTS) has been asked to explore whether the tax – a levy on any profit made when selling an asset – is too low, relative to income tax rates.
There have long been protests that wealthy households exploit tax avoidance to pay too little for the sale of second homes, works of art and stocks and shares.
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While the top rate of income tax is 45 per cent and 40 per cent for people earning more than £50,000, the average CGT paid on the sale of assets is only around 15 per cent.
One financial analyst described the review ordered by the Chancellor as “like the starting pistol for a tax grab ahead of the autumn budget later this year”.
The Treasury played down the review, a follow up to examining inheritance tax last year, saying: “This is standard internal working. There is no expectation or plans for policy changes as a result.”
Nevertheless, in his letter to the OTS, Mr Sunak said he was particularly interested in “how gains are taxed compared to other types of income”.
The review comes as the independent Office for Budget Responsibility forecasts that the recession triggered by the coronavirus pandemic will open up a £322bn budget deficit this year.
Furthermore, the government has little room for manoeuvre to raise funds from other sources, having made a manifesto promise of no rises in income tax, national insurance or VAT.
CGT raised only £8.8bn in 2017-18, a modest sum compared to those three big earners, as well as bringing in far less than corporation tax.
The OBR said the Treasury is likely to suffer steep falls in capital gains tax receipts over the next two years, as property and other assets slump in value, adding to pressure on Sunak to increase tax rates to fill the gap.
But Tory MPs can be expected to push back against any tax increases for households that have accumulated wealth, arguing it is punishing success.
And, last month, Boris Johnson – when he drew fire for urging the public to “clap for bankers” – appeared to rule out tax hikes on the rich to pay for the crash.
“Our innovators, our wealth creators, our capitalists and financiers – because, in the end, it is their willingness to take risks with their own money that will be crucial for our future success,” he argued.
Nathan Long, a senior analyst at the stockbroker Hargreaves Lansdown, told The Guardian: “It would be naive to assume the Chancellor didn’t have his eye on tweaking taxes to refill his coffers.”
But Matt Hancock, the health secretary, said: “As far as I understand, there is no proposal and the Chancellor is not looking at tax changes now.
“We’ve just had the summer economic statement and apparently reviews like this are normal all of the time and not connected to any decision one way or the other.”
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