Autumn Statement: Tax expert warns of CGT cuts 'fallacy'

One of the region’s leading tax experts has warned that cuts to Capital Gains Tax (CGT) reliefs and allowances in next week's Autumn Budget are unlikely to fill the UK's £50 billion fiscal 'black hole'.  

Karen Chadwick, tax partner at Azets in the North West, the UK Top 10 accounting firm, believes the expected raid on CGT could instead change taxpayer behaviours among the highest contributors.

It's forecasted CGT cuts could raise an additional £9bn. However, Karen Chadwick describes this as 'fallacy', with almost half (45 per cent) of all CGT paid by less than 1 per cent of taxpayers.

It is also expected the Chancellor will announce a 1.5 per cent increase to dividend taxation and a 50 per cent reduction in the current dividend allowance, from £2,000 to £1,000, in an attempt to raise a further £2bn.

Karen Chadwick said: "ONS data published in August 2022 highlighted the minority of individual taxpayers involved in making the greatest contribution to CGT. In 2020/21, 45 per cent of CGT came from those who made gains of more than £5 million. This segment represents less than 1 per cent of taxpayers. 47 per cent of gains for CGT came from 13 per cent of individuals with taxable income above £150,000.

"While it might seem superficially attractive to target the wealthiest taxpayers with hikes, a significant increase in the burden of tax is bound to change taxpayer behaviours. The fallacy in this approach is that taxpayers might simply postpone disposals or avoid the tax due by relocating to other countries with more favourable tax rules.

"This is likely to result in a rethink by government and there is an increased risk that headline income tax rates or the bands at which these tax rates come into effect may change.”

Karen Chadwick predicts other tax changes introduced by Jeremy Hunt could include freezing Inheritance Tax (IHT) thresholds until 2028, despite the current nil rate band (NRB) having not increased from £325,000 since April 2009. 

She has urged business owners to start making long-term plans now, with more tax increases 'inevitable' and a general election likely to take place within two years.

Karen Chadwick added: “Future tax increases now seem inevitable - and with the next general election scheduled to be held no later than January 2025, now is the right time for proprietors of owner managed businesses to consider their future and start the process of reviewing family estate planning strategies.”