Jeremy Hunt is contemplating a multibillion-pound tax raid on profits as part of his strategy to make those ‘with the broadest shoulders’ face the brunt of the fiscal austerity he intends to implement in the coming days in an effort to restore the economy.
The Treasury is considering increases to Capital Gains Tax and Dividend Tax in an effort to close a £50 billion financial imbalance in the United Kingdom.
The proposed measure is likely to dissatisfy wealthy homeowners, especially landlords, who pay capital gains tax on the sale of real estate and other assets, as well as CEOs who sell stocks and bonds.
The dividend cut will further dismay the legion of retirees who rely on stock ownership to supplement their pensions.
And it will be detrimental to the numerous small business owners who give themselves dividends as an alternative to a salary subject to Income Tax.
This year, Mr. Sunak increased dividend tax rates by 1.25 percent to help finance the new Health and Social Care fee.
A source close to Jeremy Hunt said that tax increases were being considered, but emphasized that no decisions had yet been made, adding that “we are two weeks away” from the highly anticipated autumn budget.
On the table is an increase in the headline rate of capital gains tax – applied to profits from the sale or disposal of shares and other property – as well as modifications to relief and exemptions associated with the tax.
This would impose a heavier burden on the wealthy, as they are more likely to possess such assets.
The Daily Telegraph claimed that cuts to relief and allowances are likely, although much might still change before the budget on November 17.
The publication also said that the Chancellor is considering raising dividend taxes and either cutting or eliminating the £2,000 tax-free dividend limit.
According to Whitehall insiders, Mr. Hunt was mulling a hike in the dividend tax rate for investors. The exemption for dividend income could potentially be diminished.
According to a source, the plan is consistent with Rishi Sunak’s stated objective that ‘those with the broadest shoulders should be expected to carry the largest weight.’
In September, former chancellor Kwasi Kwarteng declared that the increase would be reversed concurrently with a matching increase in national insurance.
The Treasury stated at the time that the action “signals continued support for entrepreneurs and investors as part of the Government’s effort to expand the economy.”
However, Mr. Hunt abandoned the proposal when he tore up Mr. Kwarteng’s controversial mini-Budget last month. Now, he is considering increasing dividend tax rates by 1.25 percent.
In addition, the tax-free allowance, which has already been reduced to just £2,000, may be reduced to just £1,000 in the future.
There are three dividend tax rates: 8.75 percent for those subject to the basic tax rate, 33.75 percent for those subject to the higher tax rate, and 39.35 percent for those subject to the highest tax rate. The tax liability of a basic-rate taxpayer with £5,000 in dividend income would increase from £262.50 to £400. A person paying 40p tax on dividend income of £10,000 would see their tax bill increase from £2,700 to £3,150.
The move is anticipated to generate a small number of billions of pounds for the Treasury.
However, a dividend tax increase is likely to have a significant impact on small business owners and entrepreneurs who pay themselves via dividends.
Roger Barker of the Institute of Directors told the Financial Times, “Small businesses as a whole are not major earners, and they have already been punished during the pandemic.”
Craig Beaumont, from the Federation of Small Businesses, asserted that the government was making it increasingly difficult for small business owners to generate a profit. It is the exact opposite of what you would do if you desired growth.
Mr. Hunt is constrained by a Tory commitment not to raise the rates of income tax, value-added tax, and national insurance, the primary sources of government revenue.
It is rumored that the Treasury is also considering modifying the laws governing non-dom taxpayers.
It comes as Britain confronts its deepest recession since the Great Depression, with 5 million mortgage holders facing annual increases of £3,900 and the average family losing £800 by 2023.
The United Kingdom will experience the greatest squeeze on real salaries since the Second World War as a result of inflation’s effect on average earnings.
The Bank of England also predicted that the gross domestic product (GDP) might decline every quarter for the next two years, with growth not returning until the middle of 2024. This would be the longest economic downturn since records became reliable in the 1920s.
It occurred when the Bank’s base rate raised to 3% from 2.25 %, its highest level in 14 years following eight straight increases with more on the horizon. According to a renowned economic think group that analyzed the BofE’s projections, the average Briton will be £800 worse in the next year.
Despite these concerns, the Bank stated that it would proceed with additional rate hikes to slow the growth in the cost of living, which has reached a 40-year high of 10.1%.
James Smith, director of research at the Resolution Foundation, stated, “By the end of 2024, the average annual increase in mortgage costs for 5.1 million homes will be in the region of £3,900, compared to Autumn 2022.” Next year, real incomes will decline by almost £800 on average for households.
In addition, the Bank’s latest projections indicated a bleak picture for the British economy, with GDP expected to shrink for two years.
This would be the longest recession on record, and the economy would leave this legislative session smaller than it began. It is also anticipated that unemployment will increase by almost one million to levels not seen since the financial crisis.
The Monetary Policy Committee (MPC) voted 7-2 to raise interest rates for the eighth consecutive time, bringing rates to their highest level since the Global Financial Crisis of 2008.
This is the greatest day swing since Black Wednesday in 1992, when Britain’s decision to withdraw from the Exchange Rate Mechanism threw markets into a tailspin. The Black Wednesday rate spike, however, lasted only one day. This magnitude of sustained growth last occurred in 1989.