Both Conservative and Labour party tax proposals are in the news.
Last week we looked at a report to the Labour Party which recommended, among other things, changes to the taxation of land. We didn’t have space to address two of the other proposals which have far wider implications than the taxation of land. These should be monitored carefully as they are discussed by the Labour Party.
A new tax on equity withdrawals
As we said last week, the report recommends that inheritance tax should be abolished and replaced with a new tax on lifetime gifts which would be levied on the recipient at income tax rates. As it would take some time to abolish inheritance tax and implement this new tax on lifetime gifts, the report recommends a new tax on all equity withdrawals which are seen as ‘a key means of avoiding inheritance tax’. While that comment might just be levelled at people who participate in an equity release scheme in respect of their own home so that they can pass money to their sons and daughters during their lifetimes, what is wrong with that? Why should the state feel that it has the right to tax the maximum value of a person’s estate during the lifetime rather than following the principles of the existing legislation which are clear? Having said that, I do of course recognise that there is scope for a valid policy debate on this narrow point. However, I can see no policy justification whatsoever for taxing equity withdrawals which are made to pay for people’s medical needs, personal care or simply to fund an improved lifestyle for which individuals have worked and paid tax for the whole lives.
A new tax charge on death?
The authors’ transitional concern regarding the taxation of equity release implies that their statement regarding the abolition of inheritance tax on death does not tell the whole story. Is it intended that there will be a new death tax? Or will unrealised gains in the value of the person’s assets at death be charged to capital gains tax? Will a wealth tax also be introduced?
Conservative party members also have to exercise their minds over the taxation proposals of the two candidates in the election of the new leader of the party.
Boris Johnson has promised income tax cuts for people earning more than £50,000 by raising the 40 per cent tax threshold to £80,000. It seems that the starting point for employee national insurance contributions may also be increased but we have no details on this. Mr Johnson estimates that lifting the 40 per cent tax threshold will benefit 3m people at a cost of £9.6bn a year. This will be paid for partly by increasing employee national insurance contributions and partly from Treasury funds set aside for a possible no-deal Brexit. As Mr Johnson clearly recognises the possibility of a no-deal Brexit, one can only conclude that any income tax cuts will have to be postponed until the terms of the UK’s departure from Europe are known. Something which Mr Johnson appears not to have recognised is that, under the devolution of powers to Scotland, his proposed income tax charges will not apply north of the Border. However, any increased national insurance contributions will be levied on Scottish taxpayers.
For his part, Jeremy Hunt has pledged to cut business taxes to the lowest in Europe to attract firms to Britain after Brexit, and to reduce corporation tax. As the UK seems likely to have the lowest G20 corporation tax rate from 2020, and as increasing levies on the digital and tech sectors are a hot topic throughout Europe, it is not exactly clear what specific changes Mr Hunt might have in mind. Further explanation is required from the candidate.
On the subject of explanations, many myths are in circulation about GATT24 and the UK’s trading position following a no-agreement withdrawal from the EU.