Capital gains tax could ‘be brought into line with income tax rates’
Capital gains tax (CGT) increases could be around the corner as the chancellor Rishi Sunak looks to find the money needed to cover the government’s unprecedented spending and borrowing during the pandemic.
Given that the prime minister Boris Johnson has already ruled out a return to “austerity” in public spending, this money will have to come from somewhere.
There has been speculation for some time that CGT rates would increase.
Anthony Codling, CEO, twindig, commented: “As we enter 2021 chancellor Rishi Sunak is reviewing the structure of UK taxes. The pandemic has been costly in both emotional and economic terms, UK government debt is at an all-time high and eventually, these debts will need to be repaid. Taxes are therefore likely to rise.”
CGT is currently charged at 20%, but there are growing calls that it should be increased to 28% across the board or possibly aligned to income tax rates – at up to 45%.
The government’s tax adviser recently recommended that CGT be overhauled with proposals that could see the number of people hit by the duty increase sharply.
Rishi Sunak, who commissioned the review, is considering proposals by the Office of Tax Simplification (OTS), a Treasury-based body, to reform capital gains tax in the light of the economic and fiscal impact of the Covid-19 crisis.
The move has the potential to bring in an extra £14bn by reducing exemptions and doubling rates, according to the review.
Codling said: “Our working assumption is that capital gains tax rates will be brought into line with income tax rates, higher rate taxpayers will therefore pay higher rates of capital gains tax.”
Currently, a taxpayer’s primary residence is exempt from capital gains tax, but this could soon change for some homeowners.
He added: “We do not expect this exemption to be taken away completely, but we would not be surprised if the amount of exempt gain was subject to either an annual cap, a lifetime cap or a combination of both. This would be similar to pension relief where the amount of tax benefit in any one year is capped as well as the taxpayers lifetime tax benefit.
“Second-home and buy-to-let property gains are already subject to capital gains tax at a higher rate [28%] than the capital gains on other assets [20%]. We forecast that these rates will be equalised and reflect the taxpayer’s income tax rates.
“This will mean a tax rate increase for higher rate taxpayers and a lower tax rate for those with earnings below the higher rate tax threshold. However, it is likely that a capital gain on a property will move a lower rate income taxpayer into the higher rate tax bands.”
Article source: MARC DA SILVA