New thinking for Labour on taxes?

New proposals for reforming capital gains and income tax were recently published by the IPPR in ‘Just tax: Reforming the taxation of income from wealth and work’. The IPPR calls itself ‘the UK’s pre-eminent progressive think tank’ on its website so it is always worth taking note when they publish proposals on personal tax reform.

The IPPR starts from the premise ‘that income from wealth should be taxes the same as income from work’. This translates into a plan to:

  • tax capital gains as income;
  • scrap the annual capital gains tax (CGT) exemption of £12,000 and replace it with a minimal allowance of perhaps £1,000;
  • remove the CGT exemption which currently applies on death; and
  • withdraw most CGT reliefs, other than those for an individual’s main residence.

The proposal on income tax and national insurance contributions (NICs) is more radical and will affect many more taxpayers:

  • Income tax and NIC rates should be merged to produce one rate, which applies to all income, from whatever source;
  • The personal allowance should be reduced to bring it into line with the starting point for NICs (about £8,600); and
  • Tax rates should rise gradually, rather than using the current band approach. For example, the IPPR suggests the rate could start at 2% and rise to 50% on income above £100,000.

If this system were adopted on a tax-neutral basis, that is, producing the same income for the Exchequer as the current structure, the IPPR says that “around 80%” of taxpayers would see a rise in take home pay. The obvious corollary goes unmentioned.

If you needed a reason to revisit your tax planning now rather than later, the IPPR may have just supplied it…