Smith & Williamson national tax director Richard Mannion says it is right that gains on long-term capital investments are taxed at a lower rate than income, but it has led to taxpayers seeking out ways of re-designating income as capital.
He says: “Consequently the CGT rate on short-term gains could be increased from its current flat rate of 18 per cent to an individual’s marginal rate of tax to make it less attractive to reclassify income.”
Mannion warns that HMRC may also scrutinise salary sacrifice, which is paid for by employers and therefore reduces the government’s tax take.
He says: “We could see the government restricting the tax relief on these benefits for higher earners in the same way as they are already planning to restrict tax relief on pension contributions for those earning £150,000 or more. Such a move could affect those in salary sacrifice schemes covering, for example, free lunches, child care vouchers, car parking and cycle to work schemes.”
Mannion is urging the Government to ease the rules on venture capital trusts and the enterprise investment scheme, to aid entrepreneurs and smaller businesses.
He says: “The conditions as to the size and value of companies which can qualify for investment under these schemes have been made much more restrictive over the last few years.
“We expect to see the business payments support service to be formally extended to partnerships, bearing in mind that the cash flow effects of the recession will be with us for some time yet.”