It is estimated that by the end of this year the global pandemic will have cost the government over £300 billion, leaving a significant hole in the Westminster purse. It is to be expected therefore that the hole will need a plug of some sort and it is likely that this will be in the form of changes to the country's tax legislation.
With this in mind, the Chancellor's call last week for the Office of Tax Simplification (OTS) to undertake a review of the Capital Gains Tax (CGT) regime to consider how the chargeable gains of individuals and smaller businesses are treated is perhaps to be expected. CGT currently brings in around £9bn a year but it is anticipated that this could almost half to around £4.6bn per year following a fall in share prices over the last few months.
What is under review?
The Chancellor has stated that this exercise is designed to simplify CGT and the main areas he is interested in are:
- Loss relief
- Taxation of gains in comparison to other taxes.
What are the current CGT rates?
CGT is currently levied as follows:
- 18% basic rate/ 28% higher rate on your gains from residential property
- 10% basic rate/ 20% higher rate on your gains from other chargeable assets
- The annual exemption for 2020/21 is currently £12,300
It would be fair to say that the CGT rates have reduced significantly over the years, but the reductions in the rates were thought to be aimed at compensating for the removal of valuable reliefs such as Indexation Allowance, Taper Relief and other specific reliefs which have been withdrawn over the years.
In recent budgets the restriction of available reliefs has continued with extensions to the qualifying period for Entrepreneurs Relief and a significant reduction of the amount of lifetime relief available to business owners who sell up. Further reporting obligations and short deadlines have also, from 5 April this year, been placed onto those who invested in property.
So the CGT regime has not exactly been void of change over the years. With a drop in employment income expected, though, it would seem capital taxes may well be the route to recover at least some of the Covid costs.
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