07 Sep President Biden’s tax plan to raise capital gains considered worldwide
President Biden’s tax plan to raise capital gains is also being considered by other countries worldwide. Biden has suggested doubling the capital gains tax rate for the highest earners in America.
Tax experts in the US and EU have suggested that other countries will be having the same discussions to recoup some of the losses now experienced due to the Covid-19 pandemic. The wealthiest in society (the top 0.3%) will be the hardest hit, and because they have the most, they have may now have the greatest to lose.
The proposed US capital gains tax plan will see Americans who earn $1m annually pay 39.6% instead of the current 20%; this would rise to 43.4% if coupled with an existing surtax on investment income.
The UK Chancellor of the Exchequer Rishi Sunak had proposed a similar Capital Gains Tax increase in 2020, but further details are yet to be announced.
The financial reporter, “CGT has received a lot of attention from both the government and the OTS over the last year. Many predicted that there would be a rise in CGT, but this did not happen. Speculation is rife as to what the outcomes may be from the two reports and the Chancellor’s statement from last July. Whilst many believe that this year will see an increase in CGT rates, these changes may not be so one-dimensional.”
Biden’s capital gains tax plan is said to be focused on the redistribution of wealth to help improve social inequalities, which have increased throughout the global pandemic. Biden’s plan is also to help rebalance stimulus support packages by increasing taxes for those considered “mega-rich”.
There is even talk of taxing income and capital gains similarly in the future to ensure greater social equality.
In reaction to these possible changes in capital gains tax rises, other countries may make their system appear more attractive to wealthy US citizens.
The UK may seem an exciting prospect regarding the non-dom regime, but this would not remove the federal tax, although 43% probably seems more favourable than 55%. Even if the UK does increase taxes, savings are still likely for those considering this option.
The US authorities can impose federal taxes on their citizens, whichever country they reside in. Some Americans who the capital gains proposals will directly affect (if passed) may even renounce their citizenship but doing so could have a downside. Attempting to escape the increase of one tax could incur another because owning global assets worth over $2m is subject to an exit tax or an expatriation charge.
One way to avoid the capital gains tax rises would be for the wealthiest citizens to crystallise their capital gains sooner and benefit from the existing taxation system avoiding the rises.
If changes in capital gains rise affect you, our advice is to contact your tax advisor with any questions relating to the US, UK or international tax systems.