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Finance

Tom Griffiths on Biden’s tax plan opens the door to the rest of the world to raise capital levies

Tom Griffiths - tax plan

Tom Griffiths – tax plan. Image credit: https://unsplash.com/photos/N7XodRrbzS0

Biden’s tax plan opens the door to the rest of the world to raise capital levies. Tom Griffiths looks at who is likely to bear the brunt and what this means for Americans. Read more…

When President Joe Biden announced plans to almost double the capital gains tax rate for America’s highest earners, it was a moment of great concern not just for those in America but worldwide.

In the wake of the global pandemic, it’s not surprising that tax experts in the EU and the US suggested other governments could do the same and squeeze the wealthy to tighten up the coffers.

Biden’s tax plan would see American citizens who earn more than one million dollars annually go from paying 20% to 39.6 percent and rising to 43.4% if alongside an existing surtax on investment income. Only Ireland has a higher rate of 51% on dividends. The higher rate will only apply to the top 0.3% of US citizens; this applies to a broader range of taxpayers in other countries.

Those in the UK were expecting the CGT rates would be raised, but things haven’t exactly gone that way… yet!

According to 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.”

The Biden tax plan contains two key trends developing in Europe and other established global economies.

One is the redistribution of wealth to help improve social inequalities via the tax system, which have increased throughout the pandemic. The second is to rebalance stimulus support packages by increasing taxes for those considered “super-rich”.

As is so often the case during times of social uncertainty, some get rich and those who get poor. Someone always has to pay to redress the balance. 

Questions are being asked on both sides of the pond whether gains from capital assets and income needs to be taxed similarly in future. It seems shocking that a stockbroker can end up paying less tax than their cleaner. The call for greater social equality has always been there, but now tax activists welcome this shift.

There is a genuine prospect that other countries will make their tax plans more attractive to wealthy US citizens and even create new non-domiciled schemes for tax purposes. Indeed, London (UK) may seem an exciting prospect regarding the non-dom regime, but this would not remove the federal tax, but 43% will probably seem more favourable than 55%. Even if the UK does increase taxes, this is still saving and may well be a serious consideration for some.

Tax expat specialists like Tom Griffiths know all too well that the US authorities can impose federal taxes on their citizens wherever in the world they choose to reside. Many Americans who the CGT proposals will directly impact if passed may renounce their citizenship. 

This potential knee jerk reaction could come with consequences! Because owning worldwide assets worth over 2 million dollars would be subject to an exit tax or an expatriation charge. Attempting to escape the increase of one tax could incur another, making expatriation a costly move.

Biden’s tax plan ‘opens the door to the rest of the world’ to raise capital levies.

These new tax plans being proposed by the American, UK and other Governments could mean the wealthiest individuals who have the most to lose will likely crystallise their capital gains sooner to benefit from the existing taxation system avoiding the rises.

Whether there will be significant changes to the tax plan remains to be seen. President Biden and the US and UK Governments have certainly given plenty of warning that we should all anticipate changes. Our advice is to watch this space and contact a tax advisor with any questions relating to the US, UK or international tax systems.

Tom Griffiths is a tax advisor and consultant specialising in US expatriate tax matters. He works with clients to structure and streamline taxes for investment, trading entities and owned businesses.

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