While Rishi Sunak’s spring budget introduced a variety of new initiatives and updates to multiple taxes, one suspected change was missing from the big red book. Analysts had speculated that a capital gains tax (CGT) hike would be a likely inclusion in Sunak’s budget, expecting it to be brought more in line with income tax.
While, for now, rates of CGT for higher and additional rate taxpayers remain at 28% and 20% on gains from residential property and other chargeable assets, respectively, we cannot assume that’s where they will remain. Government debt is at an all-time high, and there is speculation that an increase to CGT is one technique that may be used to address this debt. In 2020 the government’s tax adviser recommended that CGT be overhauled. This proposal suggested that a significantly higher number of people would be liable to pay the duty than currently do.
CGT is a tax on the profit made when an asset is sold or ‘disposed of’ after increasing in value. Disposing of an asset includes sale, gift giving or a transfer to somebody else, swapping it or receiving compensation for it – an insurance payout for a lost or destroyed asset for example. The tax is on the gain received, not the total value received. For example, a painting purchased for £5,000 and sold for £25,000 demonstrates a gain of £20,000. It is on that £20,000 that the tax would be payable. You do, however, only have to pay CGT on overall gains above the tax-free allowance which currently sits at £12,300 or £6,150 for trusts.
In February of 2021, HMRC’s published tax receipts data showed that CGT receipts were the highest they had ever been at £10.4bn, which may be an indicator that people were attempting to solidify their capital gains ahead of a predicted CGT increase. Whether that increase is to be expected in the near future is uncertain; we may find out at the chancellor’s next budget.
If you’re interested in how a change to the CGT rate could affect you and your assets, it’s advisable to seek professional advice. If you have any questions surrounding the potential impact on your personal finances or the topic in general, don’t hesitate to get in touch. You can call us on 01789 263888 or email email@example.com.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate tax advice.