The IFS suggests an increase on the tax rates levied on the receipt of income from business, such as increasing rates on self-employed NICs to align with the overall rate of employee and employer NICs, to do so.
A “neutral” tax base would also need to be created, the IFS said, to remove disincentives to save and invest and scrap the distortions between different types of assets and finance.
Options to achieve this included a ‘cash-flow’ approach — giving 100 per cent up-front tax deductions for all savings and investments and then tax all incomes when they are received — or a ‘deferred-allowances’ set up, which would provide a stream of annual tax allowances for a risk-free return to money saved or invested.
The backdrop
The chancellor of the exchequer is looking at a £300bn hole in the public finances after spending soared last year as the government tried to save jobs and businesses amid the coronavirus crisis.
In July last year, Rishi Sunak commissioned a review into the structure of capital gains tax, asking the Office of Tax Simplification to consider the overall scope of the tax and the rates which apply as well as the reliefs, exemptions and allowances.
The OTS recommended an overhaul which would see capital gains rates more aligned with income tax, their annual allowance reduced and the ‘uplift on death’ removed. Such a move would bring in an estimated £14bn of extra revenue to the exchequer.
imogen.tew@ft.com
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