Recently, there has been a lot of media coverage about possible CGT changes. Property Wire reports that landlords are worried about Capital Gains Tax increases. The Mirror suggests that voters back the idea of the Chancellor raising CGT in next month’s budget. The Financial Times considers whether it’s worth putting assets into trust ahead of possible changes. So, what are the CGT changes 2021 has in store, and should you be worried about them?

Why are people talking about CGT changes?

Since the pandemic struck, the government’s finances have taken a major hit. It has borrowed and spent billions of pounds on financial support packages, including the furlough scheme and SEISS. It has guaranteed billions of pounds worth of lending, such as through the Bounce Back Loan Scheme. Then there’s the huge amount of spending on the NHS as it tries to juggle normal levels of care with an influx of coronavirus patients.

In short, the government is spending beyond its means and needs to find ways of clawing back income. For this reason, CGT has come into focus as a potential source of extra income.

Are there specific proposals for changes to CGT?

Yes. In November 2020, the Office of Tax Simplification (OTS) published a new report called Capital Gains Tax review – first report: Simplifying by design.

The OTS is an independent office of the Treasury. Its role is to find areas of the tax system that can be made less complex. Its review of Capital Gains Tax was written in response to a request by Chancellor Rishi Sunak in July 2020.

What are the proposed changes?

The OTS makes a large number of recommendations, which you can find summarised on pages 18-19 of its report (pdf file).

The key recommendations that are likely to be of most interest to THP clients are as follows:

  • CGT rates could be more closely aligned with income tax rates. If the two taxes had the same rates, higher rate taxpayers would see CGT bills rise from 28% to 40%. Basic rate taxpayers would see them increase from 18% to 20%.
  • If CGT and income tax rates become more closely aligned, the government should also consider introducing a relief for inflationary gains.
  • The Annual Exempt Amount for CGT should be cut. This is currently set at £12,300, but some reports suggest that it could be lowered to £2,000.

If these changes come into effect, then they will have a particular impact on buy-to-let landlords wanting to sell their properties. Increased CGT will be a particular worry for landlords who have owned properties for a long time and those with properties in areas where prices have risen rapidly.

Are CGT changes certain for 2021?

No. The OTS recommendations are just that – recommendations. The Chancellor is under no obligation to introduce all or any of them.

However, given that the Chancellor commissioned the CGT review in the first place, it’s likely that he will introduce some form of change in his March Budget.

What should I do now?

Given what we currently know, it would be wise to consider how increased CGT rates and a lower Annual Exempt Amount could affect you. If you are a buy-to-let landlord, any tax hikes could potentially have a huge impact on your portfolio. If you’re a THP client and you want to talk through options for responding to a hike in CGT, please get in touch using the form below. We’d be very happy to help you plan for any upcoming changes to Capital Gains Tax.

If you are a THP client and you would like to talk through possible changes to Capital Gains Tax, please get in touch. 

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Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

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