Following Rishi Sunak’s call into a wide-ranging review of capital gains tax (CGT), the Office of Tax Simplification (OTS) has now released its findings, making for sombre reading. Whilst the Chancellor has no obligation to follow any of the OTS suggestions, for anyone planning significant capital disposals, it will be useful to understand how the report could influence future CGT changes.
The report includes ideas to:
- More closely align CGT rates with income tax rates;
- Reduce the CGT annual exempt amount (currently allows £12,300 of gains to be free from tax);
- Reintroduce an indexation allowance (the opposite of simple!);
- Reassess share scheme taxation particularly for small businesses;
- Remove some CGT reliefs for owner-managed businesses;
- End CGT base-cost uplift on death and introduce a rebasing for historic gains up to the year 2000 (with any gain thereafter being caught and subjected to tax);
- Scrap Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investor Relief, and
- Reintroduce a retirement relief.
The report all in all is very far reaching and there may be unintentional casualties along the way, e.g. could the way Family Investment Companies are taxed be changed/caught?
What can individuals consider doing now?
- Make gifts now whilst CGT rates are relatively low (up to 20% for non-residential property related assets and 28% for residential property assets).
- Gift assets to a lower earning spouse so as to use up their potential lower CGT band rates. Gifts between spouses can (currently) be made free of CGT and free of IHT.
- Assets can also be transferred into joint names to ensure that both spouses’ annual CGT exemptions are fully utilised in a sale (assuming such exemptions aren’t withdrawn or substantially reduced).
- Gift assets containing losses as well as those with gains to offset one another, including making gifts to nil rate band trusts (i.e. gifts of up to £325k).
- Invest in EIS to defer realised gains – a further bonus in that investments held for at least two years usually qualify for relief from IHT .
- Ensure the Annual Exempt Amounts for CGT are used whilst they are still available.
Whilst we appreciate this is ‘speculation’, Capital Gains Tax is a likely area to assist in the Government creating extra income to cover the cost of some of their spending to protect the economy during the pandemic.
Need to know more? If you have a question or would like more information please contact me or a member of our team at email@example.com, or call 0330 058 5000.
Adam YoungDirector, Private Office