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Official report recommends significant increases in Capital Gains Tax

A report from the Office for Tax Simplification (OTS) has recommended that ministers consider bringing rates of Capital Gains Tax (CGT) into line with Income Tax or consider addressing ‘boundary issues’ between CGT and Income Tax.

The report also recommends:

  • Wide-ranging reductions in reliefs and allowances; and
  • Less generous treatment of gains resulting from inherited assets;
  • Reducing the threshold to £5,000.

CGT is levied at 10 per cent for basic rate taxpayers and 20 per cent for higher or additional rate taxpayers on gains from the disposal of assets worth £12,300 (£6,150 for trusts) or more at market value, including most personal possessions worth £6,000 or more, shares and business assets.

Property that is not a person’s main home and main homes that have been let out, used for business or which are very large are also subject to CGT but at 18 per cent for basic rate taxpayers and 28 per cent for higher or additional rate taxpayers.

Basic rate taxpayers must pay CGT at the higher rates on the value of any gains above the higher rate threshold of £50,000 a year.

Moving CGT in line with Income Tax would mean that basic rate taxpayers would pay 20 per cent of gains, rather than 10 or 18 per cent. Higher rate taxpayers would pay 40 per cent on gains, rather than 20 per cent or 28 per cent. Additional rate taxpayers would pay 45 per cent on gains, rather than 20 or 28 per cent.

Meanwhile, reducing the threshold from £12,300 to £5,000 would mean many more taxpayers would be subject to CGT and those who would already have to pay CGT would have to do so on a greater proportion of their income from disposals.

Should the Chancellor opt to implement recommendations from the report, it is likely that they would particularly affect landlords, small business owners, investors and second home owners.

The OTS report will add fuel to mounting speculation that CGT could be in the Chancellor’s sights, potentially as soon as the Budget in March, as he looks to plug the hole in the public finances following the Coronavirus crisis.

A recent report from the Institute for Fiscal Studies (IFS) said that it is ‘all but inevitable’ that there will be tax rises of more than £40 billion a year by the middle of the decade.

The growing consensus that there will be substantial tax rises in the coming years means careful tax planning that takes into account your whole financial position is more important than ever.

Please contact us today for tax planning and advice tailored to your specific circumstances.