Rishi Sunak has already announced a number of tax “bombshells” as the Government tackles the costs of coronavirus. In recent weeks, the Chancellor introduced two “major hikes”. This included an increase in corporation tax and the introduction of a Health and Social Care levy, pushing up National Insurance by 1.25 percent. However, while savers are still getting to grips with these changes, further tax alterations could be coming for pensions, Capital Gains Tax (CGT) and Inheritance Tax (IHT).
Nigel May, a tax partner at MHA, noted the Chancellor’s changes already “run contrary to the instinctive tax cutting agenda” associated with a Conservative Government.
But despite this, it should be remembered Britain is going through “extraordinary times” and as such, further tax measures may be targeted by the Tories come October.
Mr May explained while pensions and IHT could be targetable options for the Government, it is likelier CGT rules would be altered.
“A change in CGT rates would be easier to achieve but would not raise much,” he said.
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“Many of the current tax reforms seem to involve a ‘back to the future’ mentality, as evidenced when CGT Entrepreneurs’ relief was introduced, borrowing many concepts from a previous CGT relief, Retirement Relief.
“So a return to a 30 percent rate, which is what the original CGT rate was when the tax was introduced in 1965, would not be a surprise. If this happens the £1m business asset disposal relief is likely to be preserved.”
Mr May concluded by examining what these tax changes could mean for the Conservatives in the years to come: “Every Chancellor in every Budget wants to have a ‘rabbit out of a hat moment’, and the forthcoming Budget will have at least one to produce a cheer.
“On the spending side, levelling up will feature prominently and we may also see a return to green tax policies. While the next election does not have to take place until December 2024, there seems a real possibility of an early election and the next few Budgets need to be looked at against this context.”
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This is not the first time CGT has been identified as a potential target as in recent weeks, a number of experts have stepped forward to warn savers on what may be coming.
Tom Selby, an analyst at AJ Bell, noted it is “very possible” CGT could be aligned with Income Tax. This could mean Britons paying as much as 45 percent on the levy.
Additionally, Shaun Moore, a tax and financial planning expert at Quilter, explained CGT receipts currently “dwarfs” what is brought in through IHT. This in turn would make it “more attractive” for the Government to target.
Should CGT rates be increased, Britons may see a range of their financial assets take a costly hit.
What is CGT paid on?
CGT is a tax levied on the profit when a person sells an asset that has increased in value. The gain itself is taxed, not the amount of money the seller receives.
CGT is usually associated with investment themed assets but it can be levied on a range of assets, including:
- Most personal possessions worth £6,000 or more, apart from a car
- Property that’s not a main home
- A main home if the seller has let it out, used it for business or it’s very large
- Business assets
Where CGT is due, the amount paid will depend on one’s taxpayer status.
CGT rates and allowances
People will only have to pay CGT on their overall gains above a tax-free allowance, also known as the annual exempt amount. The current CGT allowances are £12,300 or £6,150 for trusts.
CGT rates will be different between residential property and other asset sales, with higher or additional rate taxpayers paying 28 percent CGT on the gains from residential property. This lowers to 20 percent for other chargeable assets.
For basic rate taxpayers, the CGT rate paid will depend on the size of the gain involved, their taxable income and whether the gain is from residential property or other assets.
Basic rate taxpayers will need to work out how much taxable income they have and then calculate their total taxable gains.
They will then need to deduct their tax-free allowances and add this amount to their taxable income. Should this amount be within the basic income tax band, they’ll pay 10 percent CGT on their gains (or 18 percent on residential property).Internet Explorer Channel Network