The Labour Party recently commissioned a proposal paper entitled: ‘Land For The Many: changing the way our fundamental asset is used, owned and governed’ which can be downloaded here (pdf).
Within this, a number of recommendations for reform are set out for possible inclusion in the next Labour party manifesto.
While much of the paper focuses on land ownership in England, the paper also includes a number of recommendations regarding inheritance tax and amendments to the current rates of capital gains tax.
In this note we provide a brief summary of these proposals.
1. Increasing Capital Gains Tax rates
The paper sets out a number of proposed changes to the current system of taxation. One significant proposal is to increase capital gains tax rates for certain transactions. The proposal is that the rate of capital gains tax for second homes and investment properties be increased so that it is in line with current income tax rates.
Currently this would mean a rate of 20% for basic rate payers (as compared to the current rate of 18%) and 40% for higher rate taxpayers (as compared to the current rate of 28%). The policy behind this is a desire to combat what is described as the intuitively unfair policy of taxing “income” derived from asset appreciation, which they state requires no work, at a lower rate than income derived from labour.
The possibility of removing principal private residence relief (which can often exempt property sales from tax) is also raised. While this is given consideration, the paper does acknowledge that it could create difficulties when people look to move house. As such, the paper favours reforming inheritance tax as a means of redistributing wealth.
2. Replacing Inheritance Tax with Lifetime Gifts Tax
The second proposed change to the tax system lies in the abolition of inheritance tax and its replacement with a lifetime gifts tax. Such a system would be intended to tax all gifts during life, with death acting as a final gift (this is similar to the regime of “capital transfer tax” that was in place prior to 1986).
The proposal finds its basis in the work of the Resolution Foundation and the Institute of Public Policy Research and has received public support from the shadow chancellor, John McDonnell.
Under the proposed system, each individual would receive a lifetime allowance of £125,000 for gifts that they receive. Once this limit was reached the recipient of a gift would be taxed. The rates of tax that would apply are not fully set out.
The Labour proposal paper refers to gifts being taxed at the rate of tax on “income from labour” (which could be as high as 45%, or more if national insurance was also charged).
As a comparison, under the modelling set out by the Resolution Foundation (on which the proposals are based) the rate of tax is initially set at 20% with a top rate of 30% for lifetime gifts exceeding £500,000. They predict that such a change, if implemented, would see the system bring in £11 billion in the period 2020-21 compared to the £6 billion predicted to be brought in by the current inheritance tax system.
It is also suggested that because each recipient would have their own allowance (as compared to the current, “nil rate band regime”) such a system would encourage the distribution of wealth to those who have not received large lifetime gifts previously, and as such would encourage a wider spreading of wealth. It is expected that a full spouse exemption would also operate.
The proposal paper recognises that such a system would take time to implement, but again highlights the Labour plan to reverse the Conservative government’s introduction of the inheritance tax residence nil rate band.
Finally, the paper also calls on a new tax be introduced to tax “equity withdrawals”. No further details are provided.
3. Reform to Business and Agricultural Property Exemptions
The final arm to the proposals concerning the reform and potential replacement of inheritance tax is that consideration should be given to the reform of both business and agricultural property relief.
While the paper does acknowledge the importance of such reliefs, it raises the possibility of recasting both reliefs so that they act as a form of tax deferral rather than a full relief.
Under the proposals, the revised reliefs would defer a tax charge until the eventual sale of an asset, or on a business ceasing to trade. This would be similar to “woodlands” relief, which can currently operate to defer tax on woodlands until the timber is cut.
Finally, the paper also addresses what it takes to be abuse of the tax system by people who seek to mitigate inheritance tax liabilities by investing in farmland and forestry assets. It suggests that this area be given a further review in future with a view to removing the opportunities to use such assets as a tax shelter.
The changes, if implemented, could have a very significant impact on succession plans currently in place or under consideration, and at a time of significant political change.
It should be remembered that at this stage, it is only a proposal document but clearly there are major implications should even some of this be brought in to our tax code in the future.
Has anyone stopped to think what would happen to our wonderful country if this MORON were able to sneak in to Number 10? Here is a man with an inherent contempt of the free market, a free economy, fair competition and most importantly free thinking. We have seen Marxism in its worst form over the last century, we are all aware what the Stasi did to all those who’s line of thinking did not fit in with the narrative. People were punished for free thought, for objecting to the mind control, this ranged from anything from arrest and persecution to torture in a Mental asylum.
WE MUST NEVER ALLOW THIS TO HAPPEN AGAIN
This man wants to destroy prosperity, he wants to take away everything you have worked for and give it to those who refuse to work for it, when they run out, he intends to import more and more, until you are little more than mention in the history books.
This is not a change in taxation, this is state theft on a grand scale, Mr Corbyn should be seen for exactly what he is and NEVER allowed in to power!