Are we set to see Capital Gains Tax rise to create ‘wealth tax’?
Capital Gains Tax has often been mooted for change when each Budget comes around, but it’s suddenly hit the headlines again, following the Summer Statement.
Simple. Chancellor Rishi Sunak has launched a review of CGT - a levy on any profit made when selling assets.
The Office of Tax Simplification has been tasking with ensuring “the system is fit for purpose", according to Mr Sunak’s letter to officials.
Is COVID debt the real reason?
Government borrowing is expected to surge to £322bn this year.
With a gargantuan amount of debt racked up to support COVID-related financial measures such as furlough, the Government will have to find means to plug the gap.
It’s widely speculated that some taxes will have to rise before long and CGT could be in line to become one of those.
Money Observer reports it could potentially become a ‘wealth tax’ to help fill the Budget black hole caused by the cost of COVID-related measures.
One financial analyst told the Independent the move was “like the starting pistol for a tax grab” ahead of the next Budget.
The BBC quotes Hargreaves Lansdown’s Nathan Long, analyst at Hargreaves, who said: "It would be naïve to assume the chancellor didn't have his eye on tweaking taxes to refill his coffers."
But a Treasury statement played it down, saying: "It is standard practice to keep taxes under review."
What changes might we see?
One proposal already on the table came from Labour in the 2019 election.
It wanted to bring CGT into line with income tax rates – effectively meaning a big hike for higher earners and smaller increases for basic rate taxpayers.
The Institute for Public Policy Research has suggested CGT on people's wealth tied up in assets like investments, second homes and buy-to-lets should be increased to income tax levels.
What did Mr Sunak say?
In his letter, he said: “This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.
“In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
What are the current rates?
The annual exempt amount is currently £12,300. Above that, rates are:
- 10 per cent if you are a basic rate taxpayer
- 20 per cent if you are a higher or additional-rate taxpayer
- 18 per cent and 28 per cent respectively for capital gains made on residential property - excluding the main residence
Can software help with CGT?
Yes. Taxfiler is able to help with your CGT calculations. Fancy a demo to see for yourself? Click here.