The UK’s Prime Minister, Boris Johnson, and Chancellor Rishi Sunak have confirmed that national insurance rises for working people and employers in the UK will go ahead as legislated for from 6 April 2022 at an increase of 1.25%.
While the fiscal outlook for the UK is far from healthy-looking – with the country’s annual budget deficit forecast at £183 billion in 2021/22 and the cost of servicing it set to grow with expected upcoming increases in interest rates – this figure is a significant improvement on the March 2021 forecast. With it comes pressure for the government to scrap the planned hike in national insurance contributions, earmarked to pay for the NHS and social care.
Instead, there are many in parliament arguing for an increase in the taxation of capital.
There are currently two main capital taxes in the UK.
Capital gains tax (“CGT“) for UK resident individuals is levied at 10% or 20% (depending on their marginal rate) on most disposals of chargeable assets, save for residential property (which does not qualify for the principal private residence exemption) and carried interest, both of which are charged at rates of 18% or 28% instead. Non-resident individuals and trustees disposing of UK residential property are subject to “non-resident CGT” at 18% or 28%, with disposals of UK commercial property or indirect UK property interests attracting CGT at 10% or 20%. Non-UK resident companies disposing of direct or indirect UK property interests (whether residential or commercial) are chargeable at the corporation tax rate of 19% currently (set to increase to 25% from 2023).
Despite recommendations by the Office of Tax Simplification (“OTS“) for the rates of CGT to become more closely aligned with the rate of income tax, the UK government has not yet made any comment on its future plans for an increase in the taxation of capital gains.
Meanwhile, inheritance tax (“IHT“) remains fixed at 40% for assets above the available nil rate band of up to £325,000 (also currently fixed and has been so for a number of years). This tax-free threshold is set to remain frozen at this level up to April 2026.
A revenue hungry government could seek to increase IHT rates, reduce the starting threshold or reform the taxation of lifetime gifts as a means of taxing so called static assets and reducing the burden on working people and their employers. Such potential changes, including some recommended by the OTS’s recent review of IHT, do not appear to be in the government’s sights at present however.
Likewise, on 16 November 2021, in written answers to a House of Commons question, the Financial Secretary to the Treasury ruled out any immediate plans for the possible introduction of a wealth tax in the UK, as a one-off or annual measure.
Taxes for non-residents owning property in the UK have increased substantially in recent years. However, the UK remains an attractive place for overseas buyers to acquire property owing to its stable legal system, rule of law, and excellent schools and universities. Post-pandemic it is also very encouraging that international business investors are returning to the UK. A benign system of capital taxation is no doubt another factor that international families and businesses look for in a post-Brexit, pro-business and pro-recovery UK.