Capital Gains Tax rise to fill COVID budget black hole?
Are we going to see a rise in capital gains tax as Ministers bid to claw back the colossal outlay on tackling the coronavirus crisis?
CGT has suddenly hit the headlines again, following The Summer Statement, which itself yielded little to no tax announcements.
So, why all the chatter now?
Chancellor triggers CGT review
It’s because the Treasury has launched a review of CGT - a levy on any profit made when selling assets.
Chancellor Rishi Sunak has tasked the Office of Tax Simplification with the job.
The purpose? To "ensure the system is fit for purpose", according to Mr Sunak’s letter to officials.
Colossal COVID debt builds
Borrowing is expected to surge to £322bn this year.
With a gargantuan amount of debt racked up to support COVID-related financial measures such as furlough, the Government will have to find means to plug the gap.
Could CGT be one of those?
Tax ‘grab’ predicted
Money Observer reports it could potentially become a ‘wealth tax’ to help fill the Budget black hole caused by the cost of COVID-related measures.
One financial analyst told the Independent the move was “like the starting pistol for a tax grab” ahead of the next Budget.
The BBC quotes Hargreaves Lansdown’s Nathan Long, analyst at Hargreaves, who said: "It would be naïve to assume the chancellor didn't have his eye on tweaking taxes to refill his coffers."
But a Treasury statement played it down, saying: "It is standard practice to keep taxes under review."
What are the current rates?
The annual exempt amount is currently £12,300. Above that, rates are:
- 10 per cent if you are a basic rate taxpayer
- 20 per cent if you are a higher or additional-rate taxpayer
- 18 per cent and 28 per cent respectively for capital gains made on residential property - excluding the main residence
What might change?
One proposal already on the table came from Labour in the 2019 election.
It wanted to bring CGT into line with income tax rates – effectively meaning a big hike for higher earners and smaller increases for basic rate taxpayers.
The Institute for Public Policy Research has suggested CGT on people's wealth tied up in assets like investments, second homes and buy-to-lets should be increased to income tax levels.
What did Mr Sunak say?
In his letter, he said: “This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.
“In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
Can software help with CGT?
Yes. IRIS has a capital gains module built in for calculating any capital gains tax due. At IRIS, we’re always on top of the latest legislation changes so you can be sure that if CGT rules do change soon, our software will be updated to reflect that.
Fancy a demo to see for yourself? Call 0344 844 9644 and for more information visit here: