Capital gains tax comes under review

The Chancellor has asked the Office of Tax Simplification to review capital gains tax.

Within a week of giving his Summer Statement, the Chancellor wrote to the Office of Tax Simplification (OTS) asking it to “undertake a review of capital gains tax (CGT) and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses”. The request was unexpected and prompted some press speculation that Rishi Sunak was beginning his hunt for extra tax revenue after the unprecedented spending on Covid-19.


CGT is certainly an interesting place to start:

  • The latest data from HMRC show that there were fewer than 300,000 CGT payers in 2017/18.

  • Nearly two thirds of the tax raised in that year came from 3% of CGT payers who made gains of £1 million or more.

  • Over half of the CGT payers either paid no income tax, or paid it only at the basic rate, as the graph below shows.


The main reason why CGT payers are such a rare breed is the annual exemption. For 2020/21 this allows up to £12,300 of net gains to be realised before any tax becomes payable. Even then, the maximum tax rate is 20% (28% for residential property).


At the last election, both the Labour Party and the Liberal Democrats called for gains to be taxed at full income tax rates and for the exemption to be cut to just £1,000 or abolished. The Conservative manifesto made no comment – CGT was not one of the taxes for which a rate freeze was promised.


Neither Mr Sunak nor the OTS has put any date on when the review might be published. However, the OTS has asked for all comments to be in by 12 October, so government proposals might emerge in the Autumn Budget, particularly if that Budget appears later in the year.


There is a precedent for changing CGT rates part way through a tax year – as then Chancellor George Osborne did in 2010. With this in mind, a wise precaution might be to review your portfolio and consider whether you wish to realise any gains in the next few months, while the current generous CGT regime is in place.




Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.

Featured Posts
Recent Posts
Archive
Search By Tags
No tags yet.
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square

© 2020 Bluecoat Wealth Management

Decisions should not be taken based solely on the content of this website, individual advice should be taken first. Content is aimed at UK residents.

Bluecoat Wealth Management is an appointed representative of Best Practice IFA Group, which is authorised and regulated by the Financial Conduct Authority (FCA), FCA no. 223112. Registered Office: 11 Lady Bee Enterprise Centre, Albion Street, Southwick BN42 4BW. Registered in England and Wales no. 6828686. The Financial Ombudsman Service (FOS) is available to sort out individual complaints that financial services businesses and their clients are unable to resolve. To contact FOS please visit www.financial-ombudsman.org.uk