Changes to CGT and income tax floated ahead of Autumn Statement

Chancellor Jeremy Hunt may be planning a shake-up of capital gains tax to increase revenues from the current £10 billion a year. Whitehall sources have told the Daily Telegraph that the Chancellor is set to halve the £12,300 tax-free allowance to over £6,000 and also raise the rate of tax paid on gains made above the threshold. Treasury officials have reportedly drawn up options for raising each of the rates, according to the newspaper, but ministers have yet to decide how high they should go. Critics, including former Business Secretary Jacob Rees-Mogg, have warned increasing the tax risks landlords leaving the market and damaging the wider economy. 

It is being widely reported that the Chancellor is preparing to hold the threshold at which businesses must register to pay VAT at £85,000 of turnover until 2026, instead of raising it in line with inflation. Hunt’s plans mean thousands more businesses will pay the tax for the first time as their turnover increases in line with rising prices. The move has been deemed short-sighted and anti-growth by small business advocates. This is reported on by newspapers across the political spectrum, from The Independent to the Telegraph.

According to the Financial Times Hunt is considering lowering the threshold at which people pay the highest rate of income tax from £150,000. A Treasury source said there was an option to raise the headline rate of tax from 45p but a ‘significant lowering’ of the threshold for the highest earners would be more likely. Sunak has reportedly decided that raising the 45p rate to 50p would be an unacceptable breach of a Conservative Party manifesto promise.

It has already been widely reported that the Prime Minister and Chancellor have agreed that personal allowance and higher rate thresholds will be frozen until 2028, two years longer than previously announced. Analysis by the Centre for Economics and Business Research suggests extending the freeze will drag an additional three million workers into higher income tax bands.

The Telegraph is also reporting that the Treasury is looking at increasing the National Insurance rate paid by employers by 1.25 percentage points, despite a similar move being reversed by the short-lived Truss administration.

Raising the rate of income tax or National Insurance would break an explicit promise made in the Tory 2019 election manifesto, a document Mr Sunak has stood by since entering No 10.

The Chancellor has reportedly taken a hike to the bank surcharge off the table for his Autumn Statement. The Financial Times reports that Jeremy Hunt will slash the bank surcharge from eight per cent to three per cent, as originally planned by Sunak, when corporation tax increases to 25 per cent next year. This will result in banks paying 28 per cent tax on their profits, which is still higher than the current 27 per cent they pay but an improvement on the 33 per cent banks would have paid had the surcharge risen by eight per cent.

Hunt is rumoured to be planning to scrap plans for low-tax investment zones in the Autumn Statement. Sources told the Financial Times that Levelling-Up Secretary Michael Gove had lobbied hard for the zones to be ditched in favour of a revamped urban regeneration policy. Former Prime Minister Liz Truss wanted to introduce the zones to drive economic growth using tax breaks, as well as relaxed planning rules, to encourage business investment.

The Financial Times and Daily Telegraph both claim the Chancellor is poised to freeze the threshold above which people must pay inheritance tax for another two years. Hunt and Sunak are understood to have agreed to the move which will mean the £325,000 threshold will remain in place until April 2028. Wealth manager Quilter estimates the extended freeze could bring in an extra £1 billion for the Treasury.

The Telegraph reports that the Chancellor is set to freeze the pension lifetime allowance for two more years, with a rise in line with prices delayed from 2025 to 2027. The extended freeze is expected to hit private sector savers more than public sector workers, with Treasury calculations for the lifetime allowance more generous for the latter.

This week’s speculation comes on top of previous rumours about Autumn Statement tax contents (see here) including:

• An increase in the dividend tax rate and a cut (possibly halving) to the £2,000 tax-free dividend allowance;
• Extending windfall taxes on oil and gas companies – increasing the rate from 25 per cent to 30 per cent, extending the levy until 2028 and expanding it to cover electricity generators;
• Allowing local authorities to raise more by removing the requirement for them to hold a referendum if they want to increase council tax by more than 2.99 per cent;
• Changes to non-dom status including reducing the time period over which UK residents can avoid tax on their worldwide income;
• A new tax on ‘foreign millionaires who own posh homes in the UK while living overseas’;

When Rishi Sunak was Chancellor, several tax consultations were introduced with the intention of making changes to tax legislation in the future. It is possible that the Autumn Statement will deal with some of these changes, suggests a briefing from Katten UK LLP. 

They include:

• The introduction of an online sales tax – this consultation considered introducing an online sales tax in response to the expansion of the online retail industry.
• The reform of business rates – the consultation also addressed various measures to support businesses, for example, a temporary relief for retail industry and investment in green plant and machinery.
• The reform of SDLT in respect of mixed-property purchases and multiple dwellings relief
• The introduction of OECD Pillar 2 – draft legislation was published in the summer.
• The simplification of VAT rules for land and property
•  The reform of sovereign immunity from direct taxation – this consultation aimed to limit the scope of sovereign immunity from direct taxes. This would mean sovereign wealth funds and other sovereign persons would be liable to pay direct tax in some situations.
• The introduction of a corporate re-domiciliation regime – this consultation considered introducing re-domiciliation which would facilitate simpler relocation to the UK.
• The expansion of Investment Transactions List for the Investment Management Exemption and other fund tax regimes
• The introduction of further obligations relating to transfer pricing documentation

Away from tax, Hunt is expected to confirm that the state pension triple lock will stay in place – handing a 10.1 per cent increase to retirees. But analysis by LCP has revealed that a triple lock boost will push nearly half a million retirees over the personal tax allowance, which is frozen at £12,570 until 2026 and is expected to remain at that level until 2028 under the Autumn Statement plans. Daily Telegraph.

The Government is also considering the introduction of new ‘growth visas’ to encourage skilled workers to come to the UK and plug shortages in the workforce. The new visa route - an idea reportedly devised by Liz Truss - is ‘still being discussed’ as a way to boost economic growth, a Downing Street source told The Daily Telegraph.

Other non-tax measures expected in the Autumn Statement include:

• benefits to rise in line with inflation next year
• a further delay to the introduction of a cap on social care costs
• limiting public sector pay rises to two per cent across the board in 2023-24

By Hamant Verma, CIOT Senior External Relations Officer