As COVID-19 and its impact on the UK economy continues to dominate the news, there has naturally been speculation about the measures the UK and Scottish governments will introduce to repair the huge hole that has been left in the public finances.  The Office for Budget Responsibility recently estimated that the UK’s current year budget deficit is expected to be in the region of £370 billion.  To put that figure in context, the forecasted deficit in the March Budget was £55 billion and the annual deficit soon after the 2008 financial crisis was £150 billion. 

It seems inevitable, therefore, that the tax burden will increase, and we have seen some speculation in the press about what changes will be made when the Chancellor presents his Budget this autumn.  The latest indications are that the Budget will take place in October, but there has also been speculation that it will be pushed back to next year if there is a second wave of COVID-19 cases.   

In this blog we highlight possible reforms to capital taxes.

Capital gains tax

  • The top rate of capital gains tax is currently 20% (apart from gains realised in relation to residential properties, where the top rate is 28%). This is comparatively low in the context of the history of capital gains tax and is significantly lower than the top rate of income tax.  While we have no indication at this stage what the new rate will be, for anyone considering sales of assets or lifetime gifts, it may well be advantageous to realise gains now and “bank” the current rate of capital gains tax on the gains. 
  • Another possible change, which was in fact recommended by the Office of Tax Simplification in a report published last year, is the removal of the tax free uplift on death where the asset in question qualifies for relief from inheritance tax (e.g. business property relief, agricultural property relief or the spouse exemption).  This would, however, be complex to implement in practice and would lead to additional administrative requirements for taxpayers in the long term. 

Inheritance tax

  • Inheritance tax reliefs have been under review and, in particular, the rules which apply to businesses that undertake a mixture of trading and non-trading activities (often referred to as the ‘Balfour test’).  Those changes have not materialised in previous years, but there may be possible that Covid-19 budgetary pressures will require a different approach from the Treasury. At the moment, if a business is wholly or mainly trading then its whole value (including the non-trading assets used in the business) qualifies for relief.  “Mainly” in this context means more than 50% but, in the same report we referenced above, the Office of Tax Simplification recommended that test rise to “substantially”, taken to be 80% or more.  Such a change would have a significant impact on owners of traditional landed estates and other mixed businesses.  It would therefore be sensible for anyone who might be affected to consider their options, including the possibility of taking steps to secure reliefs currently available.     
  • Other speculative areas of reform include the removal of agricultural property relief in relation to let farms, and changes to the way in which lifetime gifts are taxed. 

Finally, we would be remiss if we did not address the possibility of the UK government levying some sort of wealth tax.  There are many forms a wealth tax could take – for instance, an annual charge akin to the rules in France or perhaps a one off tax that is specifically designed to undo some of the financial damage caused by the COVID-19 pandemic.  Notwithstanding the huge budget deficit, our view it is very unlikely that any kind of wealth tax will be introduced, not least because of the numerous practical difficulties involved. 

Please get in touch with your normal Turcan Connell contact if you have any questions on the issues raised above.  Alternatively, please email us at