IR35: GB News guest says the tax should be scrapped entirely
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Experts are calling on the UK Government to rethink its position on Capital Gains Tax (CGT) and tax wealth in lieu of work. Bright Blue, a liberal conservative think tank, recently published a report suggesting reforms to the new Health and Social Care Levy and hike on National Insurance contributions, which were introduced to pay for social care. Specifically, the reforms look to overhaul capital gains tax and inheritance tax to increase the overall level of taxation on wealth.
The report’s main proposals are to lower taxes on an average person’s work and raise them on an individual’s overall wealth.
With the National Insurance hike looming and living costs rising, Bright Blue believes this is the best course of action to mitigate the impact of the post-Covid economy.
The independent think tank is proposing that the Government should narrow the gap in headline rates between CGT and income tax.
If someone pays a higher rate of income tax, they will pay 28 percent on their gains from residential property and 20 percent on their gains from other chargeable assets.
Comparatively, if someone pays the basic rate of income tax, the CGT rate they pay is dependent on the size of their gain, any taxable income and whether the gain is from residential property or other assets.
According to Bright Blue, changes would assist in reducing the difference between tax on capital gains and tax on earnings.
This proposal will create two main rates for all capital gains of 18 percent at the basic rate and 28 percent at the higher rate, with modifications only for assets that have already paid corporation tax.
Furthemore, the group is calling on the qualifier between standard CGT rates and rates applied on residential property or carried income to come to an end.
Experts believe this will “collapse” the rate structure of CGT from four distinct rates to two rates: an 18 percent basic and a 28 percent higher rate.
On top of this, the lobbying group is pushing for the Government to end the CGT base cost uplift on death.
If this were introduced, capital gains tax liability will be assessed on the uplift in the value of assets from when they were acquired rather than their present value.
As an example, Bright Blue stated: “If someone received an asset that was originally bought by the deceased at £100 but was now worth £300, under the current system they would be treated as having acquired the asset at its current market value of £300, thus making their tax liabilities lower.
“If the base cost uplift on death was abolished, then the person inheriting the asset would instead be treated as having acquired it at its original cost of £100.
“Therefore, if they were to sell it, they would be liable to higher CGT because of the higher uplift in value.”
Sam Robinson, a senior researcher at Bright Blue, explained: “Though the public finances need to be repaired in the wake of the pandemic, simply squeezing more money out of the tax system without improving its design would be a mistake.
“The Government should not pass up the opportunity to recalibrate the tax system to better reward work and effort while responding to the rising importance of wealth and inheritance in life outcomes.”
Ryan Shorthouse, the Chief Executive at Bright Blue and co-author of the report, outlined how his proposals present an opportunity for the UK Government to deliver the promises set out by its “levelling up” agenda.
Mr Shorthouse said: “A centre-right Government that is committed to ‘levelling up’ the UK should rebalance the tax system from income associated with work and effort and onto income associated with privilege and luck.”
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