If any wealthy individuals were wondering whether or not to leave the UK, the growing likelihood of a rise in Capital Gains Tax (“CGT”) is surely enough to tip the balance. Whilst no official announcement has yet been made, Chancellor Alistair Darling’s aides confirmed before Christmas that they intend to address this issue at some point.
Currently set at 18%, the relatively low rate of CGT doesn’t seem to sit right alongside income tax rates of up to 50%. The discrepancy is particularly odd when you consider that many people can lawfully structure their affairs to choose whether they receive capital or income. Most crude avoidance schemes have been shut down, but structuring the pay deal of a high earner so that they are remunerated in shares is still permitted and commonplace.
”In so far as there is a difference [between capital and income], it is by no means clear why one should be taxed more heavily than the other,” said Nigel Lawson when he was Chancellor of the Exchequer in 1988. Subsequent governments have treated capital and income differently, supposedly because lower CGT rates are thought to encourage entrepreneurialism.
So what will entrepreneurs make of the change? The rumblings coming from the business world are predictably horrified. In 2007/8 there was a glut of business sales after Mr Darling pared down the reliefs available and at that time. This time around, there is likely to be a flood of second homes and buy-to-let properties to the market this spring, to beat the new rates.
Speculation is rife about what the new rate will be. In the bleakness of the current economic climate, taxing the better off is not just a dry issue, but is a political hot potato. The government has said that those with the “broadest shoulders” should bear the burden of the recession, but setting the rate as high as 50% would surely empty the country. 25% is the figure that has been promulgated by commentators and financial advisers alike.
It is likely that many Brits who are undecided about emigration will sit tight until firm plans are introduced. But when you consider our high tax rates, inflexible pension arrangements and poor weather, a retirement abroad sounds very attractive indeed.
