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Treasury’s new tax policies were a missed opportunity, City analysts say

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The government has published new tax policies and consultations on Tuesday as part of its ‘Tax Day’ to outline plans for tax administration.

The over 30 documents focus on simplification of tax administration, inheritance tax (IHT) and tackling avoidance.

READ: Rishi Sunak sets out stall for long-term financial recovery

The Treasury said it is committed to clamping down on deliberate non-compliance, as well as supporting taxpayers to get their tax right first time, to tackle the tax gap.

It will also cut IHT red tape to reduce paperwork, while many second-home owners should pay business rates instead of council tax if they look to rent it out.

Business rates, however, are now discounted for the hospitality and leisure sectors and around 96% of 60,000 holiday lets across the country would be eligible for the relief.

Kate Ison, partner and tax avoidance specialist at global law firm Bryan Cave Leighton Paisner, said that the new and hardened approach could have far-reaching consequences.

“Today’s proposals go further than any previous measures and, if enacted, would directly strike the core of a promoter’s finances, at best, and entire business at worst. We expect it will have a deterrent effect on some promoters and will cut off the so-called tax avoidance supply chain where promoters are wound up,” she commented.

“As regards the proposal to disqualify directors who are involved in significant breaches of anti-avoidance legislation, while it is important to ensure that individuals who are knowingly promoting aggressive avoidance cannot simply re-appear as a director of a newly established promoter or enabling company, care will need to be taken to ensure that appropriate safeguards are included to protect innocent directors who may be unknowingly involved or unaware of the breaches.”

Pension tax relief, capital gains tax remain frozen

The pension tax relief and the capital gains tax (CGT), instead, have been left as they were.

“Higher-earning retirement savers – particularly those in public sector defined benefit schemes – will be relieved rumoured reforms to pension tax relief have not materialised, although given the parlous state of the UK’s finances it would be no surprise to see this back on the table in the not-too-distant future,” commented Tom Selby, senior analyst at AJ Bell.

“Similarly, landlords, property investors and those with assets held outside tax-efficient wrappers like pensions and ISAs will also be breathing a sigh of relief that CGT will stay intact for another tax year at least.”

According to Selby, the hotly anticipated releases ended up being “the dampest of squibs” as the Treasury missed what he deemed key opportunities to improve the system.

For example, 1mln people earning below the personal allowance, most of which are women, are being automatically enrolled into ‘net pay’ pension schemes every year and so don’t automatically receive the tax relief they are entitled to.

“Failing to treat this with the urgency it demands not only leaves low earners short-changed on tax relief – it also risks undermining confidence in automatic enrolment and retirement saving more broadly,” Selby commented.

Sticking to the pension theme, there is still an issue with people being overtaxed on pension freedoms withdrawals, resulting in over £700mln repaid to savers who have filled out the official reclaim forms since 2015.

Finally, analysts were hoping to see a simplification of the ISA offering, which now counts six different types of ISA.

“From simple beginnings the ISA has morphed into a six-legged beast, with different rules governing different versions of the product,” Selby concluded.

“We know that complexity puts people off saving for their future, so the danger is people will choose not to invest their hard-earned cash into something they struggle to comprehend. We remain convinced that complexity is one of the biggest barriers to genuine engagement and will continue to push for reforms which make life simpler for people who do the right thing and save for their future.”

Internet tax on the cards

Chancellor Rishi Sunak also said that a global online tax on tech giants such as Amazon and Facebook is one of the top three priorities in G7 meetings later this year.

“It is an issue that, perhaps for international forums like this, has a lot of resonance to the citizens we represent. They care about fairness in the tax system, this is an issue that has cut through an they want a decision on it,” he was reported as saying by City A.M.

“It’s in everyone’s interest from a corporate perspective to have a multilateral solution because it will provide consistency and certainty.”

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