You may be aware that Capital Gains Tax on Property rules changed in April 2020, meaning that you now only have a month to report CGT after a property sale. Please visit the Capital Gains Tax Service page on our website for more information on that and other general CGT changes.
If that wasn’t bad enough, much more significant CGT changes could be introduced if the government accepts recommendations recently published by the Office of Tax Simplification.
Why the proposed CGT changes?
Quite simply, government spending has hit unprecedented levels during the coronavirus pandemic. The Treasury has pumped billions into the Furlough Scheme, Self-Employed Income Support Scheme, Bounce Back loans, business rate holidays and a plethora of other schemes. The government is now looking for ways of boosting its income – and it has its eye on the Capital Gains Tax system.
CGT changes to be pegged to income tax?
The biggest change the OTS is suggesting is to align CGT and income tax.
This means that, if you are a higher rate taxpayer, you would be faced with a much larger bill. For example, CGT on investments like shares would rocket from the current 20% to a hefty 40%. Similarly, if you sold a second home or a buy-to-let property, the CGT bill would jump from 28% to 40%.
Basic rate taxpayers would see CGT on investments increase from 10% to 20% and CGT on property sales creep up from 18% to 20%. Additional rate taxpayers would see their bills leap to 45%.
Lower exempt allowances
The OTS recommends scrapping the £12,300 annual tax-free allowance for CGT. Instead it suggests lowering it to as little as £2,000 per year. This would significantly increase the number of taxpayers caught in the CGT net.
Scrapping the death ‘uplift’
When a person dies, their estate gets valued before being distributed to their heirs. It then potentially becomes subject to Inheritance Tax (IHT) but is normally not subject to CGT because the same assets can’t be taxed both ways. This means beneficiaries acquire assets at their probate value – otherwise known as the tax-free ‘death’ uplift.
The OTS has proposed scrapping this uplift and has already suggested getting rid of it in a review of Inheritance Tax.
Dropping the business asset disposal relief
The OTS has suggested dropping this relief. Instead, it recommends replacing it with one that is targeted at people who aim to use their business to fund their retirement.
What do I need to do next?
Currently, the OTS proposals are just that – ideas that may or may not be adopted by government. However, given the Treasury’s current outgoings, it’s highly likely it will look at ways of extracting more income from capital gains. So it would be wise to keep an eye on any future CGT changes and plan accordingly. If you’d like advice on keeping your CGT liabilities to a minimum, please get in touch – our tax specialists are here to advise you.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration