Proposed Reforms to Inheritance Tax, Capital Gains Tax, and National Insurance Could Generate Over £20 Billion Annually, Says Resolution Foundation
The Resolution Foundation has presented a compelling case for reforms to inheritance tax (IHT), capital gains tax (CGT), and national insurance (NI), asserting that such changes could yield more than £20 billion in additional revenue each year. This proposal comes at a time when the government is seeking sustainable methods to bolster its finances while maintaining fairness in the tax system.
The Potential for Revenue Generation
The Resolution Foundation argues that reforming these three key areas of taxation could not only enhance the efficiency of the tax system but also ensure that tax increases are equitably distributed, falling primarily on those with greater financial capacity. The Foundation has highlighted that Chancellor Rachel Reeves has “greatly limited” her options for generating revenue by committing to maintain current rates for income tax, corporation tax, VAT, and national insurance.
Capital Gains Tax: A Focus for Reform
Among the suggested reforms, the Foundation emphasizes that capital gains tax is particularly “ripe for reform.” The current rates, which are perceived as “unjustifiably lower” compared to other forms of income, could be adjusted to align more closely with income tax rates. This change would not only increase revenue but also promote fairness within the tax system, ensuring that individuals benefiting from capital gains contribute a more proportionate share of their income.
Expert Insights
Adam Corlett, Principal Economist at the Resolution Foundation, remarked on the ongoing speculation surrounding the contents of the upcoming Budget for the new Parliament. He noted, “Overall tax rises are a dead cert and time-honoured tradition.” He further stated, “Long overdue reforms to IHT, CGT, and pension contribution reliefs would fit the bill and could raise over £20 billion if needed, while also making the tax system fairer and more consistent between different taxpayers.”
Implications for the Tax System
The potential reforms to IHT, CGT, and NI present an opportunity for the government to rethink its tax strategy in a way that enhances equity and ensures adequate funding for public services. By addressing these areas, the government can work towards a tax framework that is not only efficient but also reflective of the principles of fairness and responsibility.
As the new Parliament approaches its first Budget, the discussion surrounding these reforms will be crucial in shaping the future of the UK’s tax system. Stakeholders will be keenly observing how the government plans to balance revenue generation with the need for a fair and equitable tax environment.
For more information, visit Resolution Foundation.