The Office for Tax Simplification (OTS) has released a new report that recommends ministers consider bringing rates of Capital Gains Tax (CGT) in line with Income Tax or consider addressing ‘boundary issues’ between CGT and Income Tax.
The extensive report, intended to simplify and improve the CGT system, also recommends:
- Wide-ranging reductions in reliefs and allowances;
- Less generous treatment of gains resulting from inherited assets; and
- Reducing the CGT threshold to just £5,000.
Currently, 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.
There is also a separate rate for property that is not a person’s main home, where a property is large or has significant grounds or where a person’s main home has been let out.
Any gains from the disposal of these properties are subject to CGT at 18 per cent for basic rate taxpayers and 28 per cent for higher or additional rate taxpayers.
Basic rate taxpayers must also pay CGT at the higher rates on the value of any gains above the higher rate threshold of £50,000 a year.
Under the OTS recommendations, CGT would be levied at similar rates to income tax. This would mean that basic rate taxpayers would pay 20 per cent on gains, rather than 10 or 18 per cent.
Meanwhile, higher rate taxpayers would pay 40 per cent on gains, rather than 20 per cent or 28 per cent abs additional rate taxpayers would pay 45 per cent on gains, rather than 20 or 28 per cent.
The recommendation to reduce the CGT 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 gains from disposals.
If the Government were to implement the changes outlined in the report, it is likely to particularly affect landlords, small business owners, investors and second home owners.
The latest CGT proposals from the OTS have added further conjecture on what the Chancellor may include in his next Budget, as the Government looks to recover the costs incurred as a result of the Coronavirus crisis.
It also comes after a recent report from the Institute for Fiscal Studies (IFS), which has 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.
With growing speculation of substantial tax rises in the years ahead, taxpayers should consider undertaking careful tax planning now that takes into account their entire financial position.
If you require tax advice or have concerns about future changes to taxation, please contact us for tax planning advice.