Treasury urged to reform 'byzantine' tax relief system

1 Feb 19

Reviewing the UK’s tax relief bill should be a central part of this year’s Spending Review, a think-tank has urged.

The UK’s tax relief bill has grown to £164bn in 2018–19 – more than the country’s entire expenditure on health, according to analysis by the Resolution Foundation.

This equates to an average of £6,000 in relief per household, but the foundation noted that the reliefs do not benefit all households equally.

Reduced rates on things like food and energy is the biggest single tax relief at £53bn, followed by Capital Gains Tax exemption for main properties (£27bn) and pensions income tax relief (£26bn).

Tax reliefs are “rarely scrutinised for their efficacy” the group said and pointed to Entrepreneurs’ Relief which has cost more than £20bn in the last decade but has had “no obvious impact” in encouraging entrepreneurship.

While some reliefs benefit almost all families, others see very large gains going to very small numbers of people, the think-tank noted.

The average individual gain from agricultural or business property reliefs on Inheritance Tax was around £270,000, while the average gain from Entrepreneurs’ Relief was £50,000, it said.

The think-tank highlighted this year’s Spending Review as an opportunity for a “major overhaul of the UK’s byzantine system of 1,000 tax reliefs.”

Adam Corlett, senior economic analyst at the Resolution Foundation, said: “Given the looming fiscal pressures our country faces, it is particularly hard to justify huge expenditures on Inheritance and Entrepreneurs’ reliefs, both of which overwhelmingly benefit small numbers of the very wealthiest households.

“Reviewing the value-for-money of these tax reliefs should be an integral part of the Spending Review process later this year.”

A Treasury spokesperson said: “Tax reliefs play an important role in the tax system, simplifying, reducing administrative burdens, and allowing HMRC to focus resources. 

“They can ensure that the tax system operates fairly, help us remain internationally competitive and encourage positive behaviours like saving and investment.

“We keep reliefs under review to ensure that they are fiscally sustainable and value for money.”

The Resolution Foundation recently estimated that refining existing wealth taxes could raise £7bn by 2022–23.

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