Rishi Sunak, Chancellor of the Exchequer, has been tasked with steering Britain through the economic downturn brought about by the ongoing COVID-19 crisis. It is expected, in his Budget on 3 March, Mr Sunak will address a variety of economic issues, with speculation taxes could be raised to recoup some of the cost of the pandemic – although these may not be immediate. Capital Gains Tax (CGT) has been one of the levies discussed.
CGT raises close to £10bn a year for the Treasury and last year the chancellor commissioned the Office of Tax Simplification (OTS) to look at how this tax could be reformed. The OTS review of CGT, published in November, suggested four key changes as part of an overhaul:
- Aligning rates of CGT to income tax levels.
- Reducing the annual gains allowance from £12,300 to as little as £2,000 per person, but with fewer assets attracting the charge.
- Severely restricting Business Asset Disposal Relief, which allows business owners selling up to pay a reduced rate of 10 per cent on the first £1m of gains.
- Removing the CGT uplift on death, whereby capital gain liabilities are wiped out and the value of assets are reset at their current value.
It is estimated that the chancellor might manage through these measures to double annual CGT receipts to around £20bn.
How does CGT work?
CGT is due on investments you sell for a gain in any given tax year, unless:
- Your assets are held within tax efficient wrappers such as an ISA or pension.
- Your gains are covered by your annual capital gains tax allowance.
- Your gains can be sufficiently offset by your trading losses on other shares and assets.
- The asset is exempt from capital gains tax.
Rates of CGT
Currently, basic-rate taxpayers pay 10% CGT on assets, and 18% CGT on property, while higher-rate taxpayers are charged 20% on assets and 28% on property.
If an asset is held jointly with a spouse, you can both use your annual exemption against the gain, effectively doubling the tax-free amount.
What can you do?
If you’re concerned about potential CGT rises this year, now is a sensible time to review your financial plans.
We encourage you to speak to a financial planner before making any major decisions. Tax treatment depends on your individual circumstances and is always subject to change. This is a complex area and it is no means certain that any changes will increase the costs of CGT to you, but it is well worth considering what action you might take ahead of the forthcoming budget. Good advice could save you money.