Date Published: 30/01/2021 10:33
Jillian Thomas looks at proposals to change Capital Gains Tax and what impact they could have.
As we hurtle towards another financial year end, we find ourselves working with many clients trying to maximise their Capital Gains Tax (CGT) allowance.
We work on the motto of ‘use it or lose it’ when it comes to crystalising gains up to the CGT exemption of £12,300. This exemption is worth up to £2,460 a year for a higher rate taxpayer.
But there may be major changes to CGT on the horizon. The Office of Tax Simplification (OTS) was last year tasked with looking at CGT. It has come up with 11 recommendations. And some of these could have quite an impact.
One of the recommendations is for the exemption to be reduced from £12,300 to somewhere between £2,000 and £4,000. This would lead to many more people being brought into the CGT net.
Another recommendation is for CGT rates to be more aligned to Income Tax rates. The current CGT rates (this is above the exemption limit of course) are 10 per cent (basic rate) and 20 per cent (higher rate). If you think that income tax rates are 20 per cent and 40 per cent, you can see this will have an impact.
A quick bit of maths shows that if the exemption falls to £2,000 and you are a higher rate tax payer, if you have a capital gain of £12,300, rather than paying no CGT, you will pay £4,120. (This is £12,300 minus £2,000, equals £10,300 taxed at 40 per cent).
The OTS recommendations also include replacing Business Asset Disposal Relief with a relief more focused on retirement and abolishing Investors’ Relief.
But these are all recommendations at the moment, and none may take the fancy of Rishi Sunak. However, we will be watching closely and advising our clients on how to mitigate any proposed changes to CGT.
If we can be of assistance please do contact us.
No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.
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