Will Sunak raise capital gains tax to fund Covid-19
Chancellor Rishi Sunak has ordered the Office of Tax
Simplification (OTS) to conduct a review of capital gains tax (CGT). If it is
deemed the current CGT system is not fit for purpose, an overhaul of the rules
could then take place. Sunak has asked the OTS to assess the overall scope of
the tax and the rates levied.
CGT is charged on profits from the sale of assets including
shares, funds, second homes or buy-to-let properties, business premises,
paintings and antiques worth over £6,000, with the rate dependent on the
individual's income and the type of asset sold.
Basic-rate taxpayers pay 20% tax on capital gains, and
higher and additional rate taxpayers pay zo%. The only exception is for the
sale of second properties, including buy-to-let investments. Capital gains on
these investments are taxed at 18% for basic-rate taxpayers, or 28% for higher
and additional-rate taxpayers. However, every year you can take advantage of
your CGT allowance. In the 2020/21 tax year, you can make gains of £12,300
before you start paying CGT.
RECEIPTS AT RECORD HIGH
The latest figures show CGT receipts are at a record high,
rising by 18% over the past two tax years (2017/18, 2018/19) from £7.8 billion
to £9.2 billion.
Raising the tax reach on capital gains possibly by changing the tax thresholds to
align with income tax bands - would see CGT receipts rise further, potentially
as a response to help pay for UK borrow-ing, which has soared to unprecedented
levels in response to the coronavirus pandemic.
Sean McCann, a chartered financial planner at financial
advisers NFU Mutual, welcomes the CGT review, pointing out "there are
many traps with CGT that can spring nasty surprises". He adds: "Few
people realise that they may have to pay CGT when they give away property,
shares, or other investments. For example, if a parent gives a second property
or a portfolio of shares to their children in order to help them out, that
counts as a disposal and could be liable for CGT."
He points out that such a gift could also be hit with a
subsequent inheritance tax charge if the parent dies within seven years of
making it. "Those who hold onto everything until death see the capital
gains slate wiped clean and only have to worry about IHT," he says.
"Given the economic situation facing the younger generation due to the
coronavirus pandemic, it would make sense to simplify the rules to encourage
the older generation to pass on wealth during their lifetime."
Other moves potentially in the pipe-line to help rebuild the
Treasury's offers include changes to the state pension triple lock, which is
viewed as an expensive policy for the government to maintain.
WEALTH TAX PROPOSAL
Additionally, earlier this month, Labour called for a new
'wealth tax' to help the British economy recover from the costs of the
coronavirus pandemic; there has been much discussion as to what form such a tax
might take. Labour MP Anneliese Dodds proposed the wealthy should be taxed on
the value of assets owned, calling on the government not to "increase taxes
or cut support for low and middle-income people" during the crisis. She
made the point that inequality of wealth has risen over the past ro years.
Another option to help reduce UK bor-rowing is a potential reform of pension
tax relief. In late June the Association of British Insurers (ABI) was the
latest organisation to call for reform. The insurance trade body has urged for
a flat rate of tax relief on pensions to be adopted, following findings from a
report it commis-sioned from the Pensions Policy Institute. The report points
out that basic-rate taxpayers make up 83.4% of total taxpay-ers, but only
receive 26% of pension tax relief that is paid to defined contribution pension
contributions. Yvonne Braun, director of long-term savings and protection at
the ABI, said a change to the system was needed to make it simpler and fairer
to all earners.
Letter Source -Kyle Caldwell
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