Last year chancellor Rishi Sunak commissioned a report by the Office of Tax Simplification (OTS) to consider the scope of the current Capital Gains Tax. It was widely reported that the findings would result in changes to the current rates, allowances, exemptions and reliefs and with the findings from the report now finalised, it seems increasingly likely that changes are afoot.
With the hole in public finances approaching £300 billion, following the introduction of various business and employment protection measures, it is easy to see why the Government might need to compensate for some of these costs. As CGT is essentially a form of wealth tax and generally applies to those with a higher net worth, it makes for most sense in terms of an area of increased taxation especially as it is likely to receive more favourable reaction from the public as a whole.
CGT is not a simple area of taxation however, and there are varying rates dependent on the type of asset involved and an individual’s income bracket. While every individual has an allowance of £12,300, the rates of taxation extend across 0%, 10%, 18%, 20% and 28%, and there are also several reliefs such as private residence relief (PPR), among others.
As the rates and asset types vary so much, the potential options for changes to be made are numerous which can be seen from the OTS report. Examples of some of the amendments which have been suggested include:
- Aligning CGT rates more closely with income tax rates (which are currently higher)
- Cutting (potentially to £5000) the annual capital gains tax-free allowance
- Reducing PRR exemption by introducing a cap and removing extended relief (currently designed to provide exemption where property takes time to sell)
Taking action now
The recommendations made are of course just that, recommendations. However it seems inevitable that changes will be made and will affect CGT liabilities on future disposals. We recommend that clients with capital assets start to consider now how they might minimise their future exposure.
By taking up professional tax planning advice, it may be possible to identify opportunities to restructure assets or make a disposal, and ultimately provide some protection from any imminent changes to CGT rates in the new tax year.
To discuss your personal tax options ahead of the changes to capital gains tax, please contact us at firstname.lastname@example.org