Amid significant 2020 spending due to Covid-19, the government contemplates tax hikes to address debt, with Capital Gains Tax ( CGT ) reportedly a primary target for increases.
CGT applies to non-inventory asset sales, including stocks, bonds, real estate, and property.
The Office of Tax Simplification (OTS) concludes its report following the Chancellor’s request to:
“seek opportunities in administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.”
OTS finds that Capital Gains Tax can distort behavior as individuals seek to lower liabilities. It suggests aligning it with income tax, reducing exemptions, potentially boosting revenues.
ONS recommendations on CGT include:
- Aligning CGT with Income Tax
- Reducing annual CGT exemption (potentially £2,000 – £4,000)
- Removing Investors’ Relief
- Ending Business Assets Disposal Relief
- Eliminating Inheritance Tax uplift
- Reducing Capital Gains through received shares
Implementing these suggestions could notably impact taxpayers. For instance, business or share sales may lead to higher CGT liability. Replacing Business Asset Disposal Relief with retirement-focused relief could double tax paid on eligible business sales from 10% to 20%. Potential termination of Investors Relief could halve CGT on investment gains.
Should CGT align with income tax, liability could rise to 18% – 20%, or more for higher-rate taxpayers (28% to 40%).
Considering the uncertainty of Chancellor’s actions, it might be wise to bring forward capital gains into the current tax year, leveraging current 10% and 20% CGT rates (18% and 28% for property).
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