The Budget Breakdown - Episode 6

Mark Morton explores the capital tax speculation swirling ahead of the upcoming Budget, from wealth taxes and property gains to IHT and SDLT reforms. With candid insights on political motives, tax fairness, and the real impact on UK households, this episode looks at how far the Chancellor might go to fill a £30 billion gap.

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Transcript

Hello, everybody.

Mark Morton here.

Just this little series of podcasts relating to budget speculation and what has been floating around in the press over the last few months, probably looking at more the capital tax side now.

We've had a little look at pensions and a little look at savings.

As always, I think the answer to what will happen will depend on how much the government and the Chancellor perceive she is out of pocket.

I would suggest something of her own making, but never mind, you know, how much money do we actually need to raise?

May dictate which policy fills the gap, ultimately.

It's interesting.

A year ago, withdrawal of Winter Fuel Payment was critical to raise a billion pounds.

You listen to the lead up to the budget.

It appears that we may need twenty thirty billion pounds.

Well, winter fuel wasn't essential, clearly, and wouldn't be a drop in the ocean ultimately.

So you want to find twenty thirty billion quid.

You're talking about significant changes in significant areas, not a little bit of tinkering around the margins.

So we shall see.

But in terms of the capital taxes.

Obviously we've had floating around a wealth tax.

It's always tax rich people.

Of course, none of us are rich people.

It's always tax somebody else.

But where you would draw the line, I think the difficulty is, as we've seen with Non-doms, if you go down a wealth tax route for seriously wealthy people, they may just say, you know, we're up in sticks.

You know, we don't like the messaging, we don't like the cost.

There are other countries that want us with good deals and the UK doesn't seem to.

And you know, that could ultimately lead to a loss of tax.

So a wealth tax is all well and good.

But I think governments have shied away from it for years.

And I think the other thing that's worth bearing in mind, it has never been as easy to leg it.

Ultimately, you know, to leave, it's never been as easy to just say, I'm upping sticks and I'm going somewhere else, particularly at a time I go back when other countries are interested in having those people.

There has been a suggestion, which is a rather scary.

I say scary, but I mean, I struggle to get my head around this about, you know, based on the value of your home.

It may not be CGT free even though you've lived there for one hundred years.

Now, that would be a bit of a mind boggling concept that ultimately you pay some tax on the sale of your private residence because it happens to be of a certain wealth.

And one of the things that's interesting me over the years, I live in Derby, and for whatever reason, if I've walked around the middle of Oxford, for example, in an evening, I would have walked past an estate agent's window and just looked at house prices.

And what struck me where I live is relatively it is still a lower cost place to buy a house.

It is a small city.

Whereas if you head down the road to Nottingham or wherever you may go, you know my daughters live in Manchester.

The cost of housing in Stockport well exceeds where I live, for example, and so on and so forth, you know.

So you would end up in this rather strange geographic lottery where if you live in one place, you'll pay no CGT, but in another place you would on, you know, on the same house, which seems a little bit odd.

What happens to your old couple that wish to downsize and happen to have lived in a house for sixty years, which is appreciated massively more through luck than judgement and so on.

But again, you know, would you upset that many people if you put a limit of five hundred thousand pounds on it?

You know, you could look at it another way round and say a lot of working people, if you want to use that term, whatever working person means.

Of course, a lot of working people would never get into that state, and yet some people would.

Some suggesting about rejigging the SDLT system.

So to abolish SDLT and change it into a more progressive system whereby you'd say, for example, houses less than five hundred thousand, there's no SDLT at all.

But above that there are charges.

The charges would clearly be different.

They would be graduated by the sound of it, but actually to shift SDLT from buyers to sellers to try and free up the housing market a bit.

Having said that, if there aren't enough houses, I'm not sure it makes a lot of difference ultimately.

Does it help much buying?

Well, there's first time buyers relief anyway for first time buyers and so on.

So yeah, I'm not sure that would free up the marketplace.

I think if you want to free up housing, seriously, I think you could look at people with holiday cottages that they rent out and say, I was interested.

I think it was down Cornwall, Devon somewhere.

One of the councils had said, you know, we're going to whack up council tax if this is your second home and you don't really live here, and suddenly people are saying, too expensive, I'll sell it sort of thing, you know, you could whack up the additional dwelling supplement if you want to stop people buying second, third, fourth rental properties and put them into the general housing market, you make the additional dwelling supplement five hundred percent, you know, and then you've suddenly freed it up, you know?

So it depends what you want to achieve.

But it's quite interesting.

Some suggestion we may rejig the concept of SDLT somehow, somewhere a lot of changes.

Again you know, looking at those people who are wealthy in inverted commas, increased CGT rates.

I felt that for many years.

You know, it does dictate behaviour to some extent.

It's still, you know, twenty four percent and forty five percent are clearly not the same figures.

So I could see that happening to some extent.

What would be really significant?

There is some suggestion get rid of the market value uplift at death.

So you create capital gains.

But of course that would be double taxation, capital gains and IHT.

You generally one or the other.

Not both surely.

You know so again that would be significant.

But then on the other side of that you may say, well, you know, lots of working people in inverted commas never get wrapped up in IHT, etc. they don't have enough assets.

So you can look at this and say, how much money will you raise?

The trouble is you are concentrating on how can I phrase this?

The top ten percent of income earners and the top ten percent of those people with assets.

And if you're not careful, some of those people will just mitigate, whether through planning or by leaving or whatever, and you'll end up no further forward anyway.

So I'm not because of the concept of it in terms of any politics, but I'm not a great fan of it because of the practicalities.

I'm not sure it will do what it says on the tin.

I do remember when we had fifty percent rate of income tax for the first time.

And what was interesting, forty percent was okay.

Forty percent to a lot of owner managed businesses suddenly became far too much, and they started undertaking planning and schemes which they would never have dreamed of on forty percent and actually forty five percent.

They don't so much now.

So there is that trigger point at which people say, no, enough's enough.

The other thing that's been speculated about is more IHT changes, which would be more mainstream now, somehow changed the world of pets to make it harder or change the taper rates.

Maybe, you know there's more IoT payable if you give three years before death.

I think possibly more likely is changing the rules on expenditure out of income, which probably only apply to those who have plenty of income.

And you know, if you have a lot of money, you can make really significant annual savings from IHT on that.

But again, I know no more than anybody else.

I merely make the point.

All of these things have been dripped out through the press to test the water.

I think if you look at capital generally, there is going to be far less public resistance to some of the capital changes because a lot of people aren't in the IHT net and they're not in the CGT net, and so on and so forth.

On the reverse side of that, can you raise twenty, thirty billion quid out of these things?

I don't think you can.

You know, you're in a bit of you know, you could upset some people who are wealth creators here, actually lose some of that wealth to the UK and not raise material sums of money.

And this is what I find really odd about, you know, the API, BPR changes.

That only raises a billion and a half per annum.

I don't understand why the government would pick that fight when the sums involved are not material.

You know, if you want to change April to make sure that people don't manipulate their wealth into farming, say that April is only about people who actually farm it rather than grant it out on tenancies, say that they have to farm it for ten years, not two years.

Say that if it's on an agricultural tenancy, it's fifteen years, not seven, you know, so people can't manipulate it in a reasonably short period of time.

But again, the ultimate sums involved I'm not material anyway.

Lots of speculation, lots of potential changes.

We shall see.

Budget day is now not very far away, so we will see how many of these things come to pass.

Or of course, it may be that economic growth is just over the horizon and the OBR say everything looks fine and consequently no tax rises are required.

And it could be the best bit of, you know, manipulation of the public view through the press.

We've had for a long time anyway.

Get the bad news out there and then it's never quite so bad.

We shall see.

Take care everybody.