The major announcements in today's Pre-Budget Report include changes to the capital gains tax (CGT) taper relief rules, which were initially introduced in 1998: proposed changes to the children's tax credit which have not yet even come into effect, and changes to the working families tax credit which were only introduced in October.
These developments just go to show that the UK tax system has become caught in such a culture of never-ending change and endless complications that even the Government cannot see the real consequences of many of their actions. These changes proposed today, whilst welcome, should have been addressed when the legislation was first introduced.
Many of them reflect the views put forward by ourselves and other representative bodies. But if sufficient time had been given for consultation prior to the enactment of tax law, we would get the right result at the beginning. Instead, we get piecemeal rules made on the hoof and amendments to correct the more glaring errors. We intend to press the case further for a radical overhaul and simplification of the UK tax system so that it will be simple, certain, easy to calculate and constant. This reflects our commitment to the points raised in our recent discussion paper, 'Towards a Better Tax System.'
Today, the Chancellor announced changes to the capital gains tax taper relief provisions for business assets which were first introduced in the Finance Act 1998. He plans to reduce the current ten-year period needed to obtain maximum taper relief from ten years to five years. For a higher rate taxpayer, this means that the effective CGT rate will fall by 6% a year from 40% to 10% over a five-year period.
Whilst we welcome measures which will assist entrepreneurs, the introduction of taper relief over ten years and the withdrawal of retirement relief over only five years created real hardships for those selling up smaller businesses and retiring. It now seems the Government has finally listened to our concerns. We also welcome for savers the extension of the 10% starting rate to savings income. Currently, savings income is taxed at 20%, regardless of whether the taxpayers level of income would otherwise have been taxable at the 10%. This reflects comments we made earlier this year.
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