There has been recent speculation that the rate of capital gains tax is likely to be increased and some reliefs and exemptions may go. A Government review has been conducting a review about simplifying capital gains tax. This is not surprising as capital gains tax is taxed at 10%, 18%, 20% or 28% depending on the asset and the individuals other income.
The BBC has reported that this review is suggesting doubling the 10% and 20% rates of capital gains tax in order to bring them in line with income tax rates for basic rate and higher rate taxpayers. The report also suggests that a number of allowances and reliefs may be restricted or abolished with the capital gains tax annual exemption a likely target. This currently allows individuals to make capital gains of £12,300 before they pay capital gains tax.
Numbers quoted in the BBC article shows 265,000 people pay capital gains tax and 50,000 manage to create gains covered by the annual exemption. Capital growth does seen to be taxed far more favourable than income. The proposed measures could raise about £14 billion. This is a significant amount but the National Audit Office has indicated that up to 7 August 2020 the cost of measures to combat Covid-19 was £210 billion. With schemes supporting businesses, employees and self employed etc set to continue until 31 March 2021 the costs will be significantly higher.
Making changes to capital gains tax will generate extra revenue for the Government but in order to collect a significant amount in tax to pay for Covid-19, then one of the big 3 taxes has to be increased – basic rate income tax, NIC or VAT.
If you have any questions, please contact Brian King.