Capital Gains Tax – What lies ahead for rates and allowances

Capital Gains Tax – What lies ahead for rates and allowances

In recent days, the Chancellor of the Exchequer, Rishi Sunak, announced that the Autumn Budget, which was expected in the next few weeks, would not take place.  Since March this year there has been an unprecedented amount of support from the Government to deal with the economic crisis caused by COVID-19, and this will still need to be addressed, however as a Treasury spokesman said “now is not the right time to outline long-term plans – people want to see [the Government] focused on the here and now”. 

We are still anticipating changes, and in particular capital gains tax (CGT) reform is likely to be high on the Chancellor’s agenda.  So whilst now is perhaps not the right time for the Government to outline long-term plans, perhaps it does provide a welcome opportunity for individuals to think about longer term planning. 

Possible changes

Currently gains arising from the sale of capital assets are taxed at more favourable rates than income.  The maximum rate an individual will pay on capital gains is 28% in respect of the sale of residential property and 20% for almost all other assets. 

It would be easy to increase the rate of tax to income tax rates, so an individual earning over £150,000 would pay tax on gains at 45%.  This would simply be reverting to the position that was in place during the 1990s and early 2000s.    

The Chancellor might also consider altering or perhaps even removing the annual CGT exemption.  In 2020/21 this allows an individual to realise gains up to £12,300 before they start paying tax.  Or the annual exemption could be tapered as happens with the personal allowance for taxpayers earning over a certain level.

The open-ended carry forward of losses could be restricted or removed, encouraging people to generate gains in order to use these more quickly.

The payment of tax could also be accelerated.  We have seen this concept introduced from 6 April 2020 in relation to the disposal of residential property, whereby the gains must be declared within 30 days of completion and the tax paid within the same timeframe.  It would be relatively simple to apply this principle to other gains, so tax could be collected more quickly following a disposal. 

What does this mean for you?

The cancellation of the Autumn Budget means we should have certainty in relation to rates and allowances until 5 April 2021.  This presents an opportunity for individuals to consider what assets they are holding, and whether there is scope to bring forward any possible gift or disposal to benefit from the current known tax position. 

Core changes such as altering the annual exemption or the ability to carry forward losses indefinitely, as well as the possibility of an increase in the rate of CGT may well happen from the start of the next tax year, and with all this on the horizon, now is certainly a good time to review potential disposals and look at the timing of these.  Please contact a member of our tax team or your usual Azets contact.