Legal News | 19.11.20
Capital Gains Tax…significant changes afoot?
In July 2020, the Chancellor, Rishi Sunak, instructed the Office of Tax Simplification (“OTS”) to undertake a review of the current Capital Gains Tax (“CGT”) regime with a view to simplifying it. The OTS has recently published its first report, “Simplifying by Design”, which recommends a number of potential changes to the regime.
The Chancellor is to make a judgement on the review, but with an ever-increasing need to reduce the government’s deficit, the Chancellor’s conclusions could well result in some substantial changes to the rules on CGT.
The current CGT regime
Currently, where an individual makes a gain on the disposal of an asset, such as shares or a property which isn’t their primary residence, that gain is liable to CGT if it exceeds the individual’s annual CGT allowance (currently £12,300). Similar rules apply to disposals made by trusts, although they only benefit from an allowance of half the usual amount (currently £6,150).
Once this allowance has been exhausted, CGT is charged on the gain at a rate of 10% for basic rate taxpayers and 20% for higher or additional rate taxpayers (and trustees). For gains made in relation to second properties, the rates increase to 18% for basic rate taxpayers, and 28% for higher and additional taxpayers (and trustees).
The OTS’ proposals
The report’s leading proposal for change is to significantly increase the rate of CGT so that it falls in line with Income Tax. This would result in a 20% rate for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.
Furthermore, the OTS have suggested a reduction in the current annual allowance of £12,300 to as little as £2,000-£3,000 bringing a greater number of individuals within the scope of this tax.
Other proposals include scrapping the CGT uplift on death on assets which do not attract inheritance tax (IHT). Under the current regime, CGT is not taken into consideration when an individual dies and their taxable assets have increased in value. Instead, the asset is rebased for CGT purposes. This means that the person inheriting receives the asset at the value which was attributed to it at the date of death, rather than the value of the property when the deceased acquired it. If this uplift were to be removed then if a beneficiary chose to sell a property that they had inherited and which had, for example, been in the family for decades, they could face a hefty CGT bill.
We will obviously have to wait and see what measures the Chancellor intends to introduce, but if you need any advice regarding tax planning, please do get in touch with your usual Wansbroughs contact or email wealth@wansbroughs.com.
