Chancellor Rishi Sunak Considers Middle Class Tax to Tackle Rising Pandemic Debt

Middle Class Tax

A recent report by Chancellor Rishi Sunak found that £14bn could be raised by increasing capital gains tax rates to bring them into line with income tax.

This move is expected to help pay back the billions of pounds borrowed by the government to support the economy during the COVID-19 pandemic.

The government report was accompanied with a warning by Mr Sunak who claimed that “difficult decisions” would need to be taken in the weeks ahead.

Capital gains tax (CGT) is applied to any profits from the sale or clearance of shares or property, such as a second home, with an annual allowance of £12,300.

As the national debt passed the £2trn mark for the first time in July, it is understandable that the government would be consider the lowering the £12,300 annual allowance to between £2,000 and £4,000.

However, by doing this and doubling the rates which are currently 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, could force people to alter their financial behaviour, the report said.

Bill Dodwell, tax director at the Office of Tax Simplification (OTS), said: “If the government considers the simplification priority is to reduce distortions to behaviour it should consider either more closely aligning capital gains tax rates with income tax rates, or addressing boundary issues as between capital gains tax and income tax.”

However, although the review was commissioned in July, it is worth noting that the Treasury does not have to follow the recommendations.

The Resolution Foundation has said that it believes the shift would not penalise those worst-hit by the virus or the lockdown restrictions, but would raise £17bn annually.

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