As the financial burden of government support for businesses and individuals mounts, who knows how long for, the government are looking for ways to balance the financial burden. One way that is being suggested is to reform Capital Gains Tax (CGT).
Capital Gains Tax is a tax on the profit when you sell, gift or dispose of an asset that’s increased in value.
CGT is the tax paid on gain on the disposal of personal possessions, shares or other items valued at over £6000 with the exception of cars and main private residences.
There is also an annual CGT exemption, so the first £12,300 of the gain per annum is not subject to tax.
The proposed reform would see CGT rate hikes aligned with income tax tiers, so that those with higher and additional rate levels pay proportionally more CGT. In addition, the exemption rate could be lowered to as little as £2,000 per annum.
Alongside the CGT reform we could also see the end (or reduction) of: Entrepreneur’s Relief (recently cut to £1 million) now known as ‘business asset disposal relief’, and Investor’s Relief.
Historically business owners have accumulated money in their businesses, then when the business is sold the tax they pay could be subject to CGT rates rather than paying income tax rates on the total.
The news has led to a flurry of business owners and shareholders, including landlords, looking to sell their companies, shares and properties to cash in along the lines of their original tax planning strategy ahead of the proposed changes.
Of course, the selling of British companies now would not only lead to an exodus of talent, productivity, employment and revenue in the UK, but it would also not achieve the suggested goal of filling the gaping financial hole left by the pandemic should everyone sell up before the changes are instated.
Similarly, landlords and those with second properties selling up now, ahead of an already predicted housing market crash in Q2 of 2021, could devalue the housing market which is already suffering from the socio-economic effects of the pandemic.
It is worth noting that any planned disposals could impact your tax band, pushing your taxable gain into higher tax band, so a discussion with your accountant ahead of any CGT decisions is advised.
And if you’re planning on selling any property, you should read our blog on the relatively new requirement to pay CGT within 30 days.
CGT is an already complex area of tax legislation, which sounds as if it’s about to have more complexity added on top. If you’re concerned about your tax planning, whether personal or business, please contact your accountant to discuss the proposed changes.