The Chancellor, Rishi Sunak has asked the independent Office of Tax Simplification (OTS) to review Capital Gains Tax (CGT) legislation. This is partly in response to the £300bn borrowing requirement and the need to raise tax revenue to help reduce the huge level of UK government debt.
The consultation is in two stages, reporting in August and October. There may potentially be announcements about CGT in the Autumn Statement.
Stealth Wealth Tax Risk
There is plenty of speculation about how CGT could be reformed and simplified. The worry is that it could potentially lead to the introduction of a stealth wealth tax in all but name.
Furthermore, it appears almost inevitable that the CGT regime will become less favourable and lead to a higher tax take.
CGT Tax Rise
At stake are potentially all tax allowances, exemptions and reliefs from CGT. It could also include the interaction of CGT with both income tax and Inheritance tax (IHT). Major changes could lie ahead to the current CGT regime.
Mostly obviously, CGT rates could be aligned with income tax rates, seeing basic rate CGT rise from 10% to 20% and higher rate from 20% to 40% on investments. Additional rate taxpayers could see CGT rates jump to 45%.
The annual CGT exemption of £12,300 could be abolished or restricted. In addition, the ability to carry losses forward indefinitely could be abolished or time-limited.
Will CGT Remain on Death?
Currently, CGT is extinguished on death and IHT applies to the value of the estate. However, this means that beneficiaries take on assets at the current market price, so CGT is avoided on previous gains. Up for discussion is whether beneficiaries should take on an asset at the original base cost, thereby leaving the possibility of a CGT bill live. Of course, this would disincentivise individuals from selling assets and could distort markets.
Fine Wine and Classic Cars at Risk
Certain assets, such as fine wine and classic cars, as well as lottery wins and gambling winnings are currently free of CGT. CGT could potentially in future apply to these assets.
Are Homes Safe from CGT?
Most contentious of all is the potential to reform CGT in respect of property. Currently, an individual’s main home is free of CGT on sale or gift. If this were abolished or restricted, it would raise a large amount of tax revenue, but potentially undermine the property market and lead to a drop in the volume of transactions. It would also seem to be at odds with the recent Stamp Duty holiday up to £500,000.
Avoid Knee-Jerk Planning
In terms of planning, it is generally unwise to take any action in advance of speculation around potential tax changes. However, with such major reform potentially on the near-term horizon, it is prudent to take professional advice and seek to ensure that major potential tax risks are addressed as best as possible.
Please note, this does not constitute investment advice and we do not give tax advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch – telephone 01392 875500 info@SeabrookClark.co.uk