Why Capital Gains Tax is surely going to change, and why you should get things in order before it does!
Since 11th March 2020 support to deal with this COVID crisis totalling £160 billion has been provided by the Government, and so the quietly released news of a review into Capital Gains Tax (CGT) will surely lead to big tax increases in the future.
What has happened so far?
This week Chancellor Rishi Sunak has ordered the Office of Tax Simplification (OTS) to conduct a review of Capital Gains Tax (CGT). It is said that the review, which will take 3 months, has been instigated to ensure the current system is fit for purpose. The Chancellor has stated that he is particularly interested in proposals on the areas of tax rates, allowances, exemptions, reliefs and the treatment of losses within CGT.
One of the key reliefs under review is principal private residence (PPR) relief. Where the relevant conditions are met the current position is that the sale of your PPR would be exempt from CGT. Some changes have been made to the PPR conditions in the past, with the most recent change coming in April 2020, however, any major changes would be a bold move by the government and could have significant tax consequences for individuals.
The OTS has previously touched on areas of CGT in some of their previous reports. The most recent CGT-related change of note was in the March 2020 budget where the lifetime limit for entrepreneurs’ relief was reduced from £10 million to £1 million – surely a strong indicator of any future direction of travel!
So how might CGT change in the future?
Given the government spending since March, it is widely expected that there will be changes to the tax system in the UK and this CGT review is likely to be the start of this.
It is our belief that CGT rates will increase, but to what extent it is not known. Latest figures show that CGT receipts are at a record high, having gone up by 18% in the last two years (from £7.8 billion to £9.2 billion). There has been talk that in future CGT rates MIGHT become aligned with those of income tax thus making CGT a wealth tax – and for many this would mean a large increase!
What would that mean?
What is more, given the rationale behind any move, it is possible that any change might come into effect immediately, so as to reduce the ability to plan and mitigate any tax increase. The review itself is due to conclude in October 2020 and it is anticipated that the Autumn 2020 budget will also be in the month of October. This coincidental timing cannot be ignored and it could be that any changes proposed by the OTS could come into effect at the date of the budget.
What should I do now?
Given the likelihood of a significant increase coming quickly, anyone who owns significant assets should start thinking about potential planning opportunities and should speak to an advisor sooner rather than later. Perhaps you’re already thinking about selling or transferring these assets in the future, but even if not now is the time give the matter some thought.
Please bear in mind that CGT can apply if you are:
Now might also be the time to consider some other options for your wider financial planning, before CGT rates change. For example considering the transfer of assets into trust for future generations, setting-up family investment companies to control certain assets or various other long-term options.
How we can help?
Whatever your situation if you have concerns about the possible increases to the CGT rates for the assets you hold or if you have been putting off financial planning then get in touch. Effective tax planning can help ensure that your assets are structured in the most tax efficient way for your future, or the future of your next of kin.
Our Personal & Corporate Tax team are available to speak with you, whether you’re an existing client of the firm or would just like some more information.
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