Jeremy Hunt is looking at increasing taxes on people who own shares, in a move that could help the UK chancellor raise a sum “in the low billions of pounds” to help plug a fiscal hole of about £50bn.
Hunt has asked officials to look at raising the dividend taxation rate as well as cutting the tax-free allowance for dividends, according to people briefed on the Treasury discussions. They said no decisions had been taken.
Under the option being modeled by the Treasury there would be a 1.25 percentage point increase in dividend taxation across the UK’s three tax bands, currently 8.75 per cent for the basic rate, 33.75 for the higher rate and 39.35 for the additional rate.
Meanwhile, Hunt is considering halving the tax-free dividend allowance from £2,000 to £1,000. According to a government tax “ready reckoner” that move would raise £455mn in the next tax year.
Along with tweaks to the capital gains tax regime, the combined effect of the changes could run to the “low billions of pounds”, according to government insiders. The Treasury declined to comment on “speculation” ahead of the Autumn Statement on November 17.
Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said: “If government takes this step, alongside corporation tax, it’s making it harder and harder for small business owners to make any profit and so to make a living. It’s the opposite of what you’d do if you want growth.”
The Treasury paved the way for higher taxes on Monday after a meeting between Hunt and Rishi Sunak, the prime minister, when a spokesman said the two had agreed that “everybody would need to contribute more tax in the years ahead”.
However, they also “agreed on the principle that those with the broadest shoulders should be asked to bear the greatest burden”, the Treasury said.
Sir Keir Starmer, the Labor leader, has said he wants to look at how the government taxes “all different forms of income”. In September he announced he would consider the taxation of “stocks and shares and dividends”.
“Some people obviously earn their income through a wage, other people earn it through stocks and shares and dividends and we are looking at what is a fair way to tax all income wherever it comes from,” he told LBC.
Starmer last month urged Sunak to scrap non-domiciled tax status, which allows UK residents who are domiciled abroad to avoid paying tax on overseas income or capital gains, claiming it cost the Treasury £3.2bn every year.
Sunak refused to rule out that option. “I have been honest,” he said at prime minister’s questions. “We will have to take difficult decisions to restore economic stability and confidence.”
Kwasi Kwarteng, the former chancellor, had intended to cut dividend tax rates by 1.25 percentage points in his ill-fated “mini” Budget but Hunt has already overturned that cut.
The idea of increasing taxation of share dividends is likely to cause an outcry from small business owners who frequently pay themselves using dividends from their company profits.
The FSB estimates that the changes would mean an owner-manager whose business makes £40,000, which they take as dividends, will pay over £2,000 more tax than someone they employ on a £40,000 salary.
This group of business owners, who are often entrepreneurs who tend to be a core part of the Conservative vote in local communities, have already complained about being left out of the government’s Covid-19 support scheme.
Business organizations also warn that raising taxes on this group will set back any economic recovery because small companies tend to be among the first to try to invest once conditions improve.
Roger Barker, head of policy at lobby group the Institute of Directors, said its members would see a tax rise as “a very negative step”. He pointed to Hunt’s reversal of pledges made by former prime minister Liz Truss to help small businesses, such as the cut to tax on dividends and reform of self-employment rules known as IR35.
“This is going to give the impression that the government does not care about small businesses. The Treasury probably thinks this is a group that earns a lot of money but small businesses are not big earners as a whole — and they have already been penalized during the pandemic.”
Comments
Post a Comment