News: Changes to CGT looming on the horizon?
November 19, 2020
With the bill to prop up the UK Economy for the ongoing Covid-19 pandemic running into hundreds of billions of pounds, the Government will inevitably be looking into ways to claw some of this back.
The Chancellor, Rishi Sunak, will likely to be reluctant to put forward a controversial income tax or National Insurance raise, especially with the recent announcement of the extension to the furlough scheme, a more palatable reform being investigated is surrounding the rates and allowances of Capital Gains Tax.
In July 2020, the Chancellor asked the Office of Tax Simplification to carry out a review of Capital Gains Tax, and the report has since been published. It states that:
More closely aligning Capital Gains Tax rates with Income Tax rates has the potential to raise a substantial amount of tax for the Exchequer.
A change in Capital Gains Tax has been mooted for years, and with inevitable pressure to balance the books it may be low hanging fruit for the Chancellor.
Current rates and allowances
The current CGT allowance means gains of £12,300 can be made before a charge is incurred. On assets, the rate of tax stands at 10% for basic rate taxpayers, and 20% for higher and additional rate taxpayers. For sales of property, such as second homes, the rates are 18% and 28% respectively.
The proposed changes could mean a reduction in the allowance to between £2,000 and £4,000, and possibly to align CGT rates with that of income tax rates. However, it is more likely that the rates are brought in line with those of dividend tax rates.
A recent article by Which? suggests that the rules around inherited assets could also change, identifying a section of the OTS report which states that individuals should not benefit from both CGT uplift, as well as an exemption from Inheritance Tax.
The appeal of looking to CGT to raise funds is clear, as it affects the few, rather than the many, but the potential rate of return is great.
276,000 paid CGT in the tax year 2018/2019, generating £9.5 billion in tax.
What can your clients do to prepare?
It seems obvious to encourage your clients to use their allowances as effectively as possible while they still have them.
Gains made within ISAs and Pensions are free from CGT, so it would be sensible for investors to hold as much of their assets in these vehicles as possible.
Married clients, or those in a civil partnership can transfer assets into joint names, with each person currently being entitled to £12,300 CGT allowance, bringing the total to £24,600 gains which will be exempt in one year.
The importance of speaking to your clients who hold a considerable amount of potentially chargeable assets is paramount, as the next few months unfold, and we understand the level of the changes that will need to be made.
To find out how Plus can support you when having these conversations with your clients, click here.