In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.
boy with lots of calculators | accountingweb | Budget only adds to CGT complexity
iStock_RichVintage_complicated

Budget only adds to CGT complexity

by

The Chancellor’s cut to the top rate for capital gains tax from 28% to 24% has made things more complicated when increased simplicity would have been more welcome.

7th Mar 2024
In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.

Capital gains tax (CGT) is paid by a tiny number of people, who should take professional tax advice to clarify what rate of tax is due on what, and when it needs to be paid. The Spring Budget has only added to the confusion in this area. 

Multiple rates 

From 6 April 2024 CGT will be levied at one of five different rates, depending on the taxpayer’s circumstances and the attributes of the gain.

Gain attributes:

CGT rate:

Qualifies for Investment Relief or BAD relief 

10%

Arise from assets which are not residential property and fall within basic rate band

10%

Arising from residential property or carried interest falling within basic rate band

18%

Arise from assets which are not residential property and fall in the higher or additional rate bands

20%

Arising from residential property falling in higher or additional rate bands

24%

Carried interest falling in higher or additional rate bands

28%

The question as to whether carried interest should be taxed as a gain or as income is one that Chancellor Hunt has dodged for now. The Labour Party – should they form the next government – has vowed to resolve this issue by taxing all carried interest as income. 

You’re having a Laffer curve

The Chancellor joked that HM Treasury and the Office for Budget Responsibility (OBR) had discovered their inner Laffer curve by concluding that taxpayers would make more disposals if the top rate of CGT was reduced. This idea encouraged Jeremy Hunt to cut that top rate from 28% to 24%, but only for residential property, not for carried interest.

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:


Content lock down, tick icon

View all AccountingWEB content


Content lock down, tick icon

Comment on articles


Content lock down, tick icon

Watch our digital shows and more

Access content now

Already have an account?

Replies (15)

Please login or register to join the discussion.

avatar
By Trethi Teg
07th Mar 2024 17:26

I can understand that having 5 rates of CGT is a little inconvenient but frankly that is simply a small irritation when compared with the thousands and thousands of rules, reliefs, exemptions etc etc etc that one has to go through to arrive at the assessable amount.

Tax simplification is not simply about the applicable rate but the ridiculous compexity of the CGT regime as a whole.

Thanks (14)
avatar
By cpavett
10th Mar 2024 16:15

I don’t understand why accountants always complain about the complexity of the tax system. First, it’s our job to navigate a complicated system and give good advice, and quite frankly, 5 rates of cgt isn’t that many. Second, this is a tax CUT, why complain about a tax cut? Every ‘simplification’ of the tax system usually ends up with paying MORE tax (like the simplification to get rid of the furnished holiday letting scheme).
I would personally rather a more complicated system wherein we pay less tax than a simplified system that costs us more!

Thanks (1)
avatar
By adjadj
11th Mar 2024 09:57

I will be selling two flats which I have owned for more than 20 years in an area where house prices have not dramatically changed. About 75% the gain is due to inflation. When I purchased this long time holding there taper relieve; that went. There were then reasonable annual allowances but these are now gone. I will thus be paying 24% tax on the total gain. In reality nearly all the gain over 20 years will be clawed back by CGT!

The loss of the allowances will mean that a large number of taxpayers will have to complete one-off CGT returns whenever they make a profit or more than a few thousand pounds. This will greatly add to the HMRC workload.

CGT is not fit for purpose.

Thanks (1)
Replying to adjadj:
avatar
By moneymanager
11th Mar 2024 10:10

Most businesses getvroll over relief, why should an unincorporated landlord not be able to realign their portfolio in similar manner?

Thanks (0)
Replying to adjadj:
avatar
By Arbitrary
11th Mar 2024 11:47

I wholly agree. Indexation and rebasing was absolutely justified, indeed necessary; then Gordon Brown introduced taper relief (maximum relief achieved after 10 years, rather missing the point), and then cancelled it after 10 years. I assume HMRC found it a bit hard to understand indexation and the matching of costs to sales. Inflation had already reduced hugely the value of the annual exemption before the chancellor wrecked it. A straightforward return to indexation, and perhaps a new rebasing of some sort, plus the reinstating of a sensible annual exemption, to get rid of trivial cases (this being the original purpose of the exemption), is clearly indicated. The lack of understanding of 'real profit' baffles me.
I am of course repeating some of your excellent points, but I feel the need to rant.

Thanks (1)
Replying to adjadj:
avatar
By unclejoe
11th Mar 2024 12:14

adjadj, I think there is something a little wrong with you calculation. Your second sentence is a little unclear to me; has you property gone up by about the same as general inflation (which is about 73%increase in 20 years) or to a value 75% more than general inflation? I assume the former as this concurs with your first sentence. If so, in real terms it is not "most" of your gain that is going in tax, it is ALL of it. The real tax rate is infinite. If the latter I estimate the real tax rate in your case will be around 32% give or take. In fact the headline 24% (or 28%) will always be a minimum in real terms (assuming inflation not deflation of money). In fact I calculate that if house prices inflate at 25% above the general inflation rate (say CPI) a 24% nominal tax rate represents 100% tax rate in real terms. 24% will always be a minimum in real terms; even if house prices double every year the real rate will be a tiny smidgeon above 24%.
Is it realistic to think that in the (very?) long term house prices will continue to rise at 25% or more above general inflation. It seems unlikely - at some point there will be an inflection, even if it is caused by some sort of civil war when the majority of the population are living in tents in Hyde Park!!
Fundamentally, capital gains tax without indexation is unfair. But then tax is not about fairness. It is not even about appearing to be fair. Principally it is about appealing to the voter base to maximise the chances of re-election. And most voters are only interested in "what's in it for me". And worse, our education system is so bad nowadays that the wool can be pulled over the voters eyes very easily. And making tax complicated makes this even easier. But at least complex tax results in plenty of work for accountants and financial advisers.

Thanks (1)
Replying to unclejoe:
avatar
By SimonP
11th Mar 2024 16:42

Methinks that you have too much time on your hands. ☺️
Are you marking time until 6th April when the new tax returns (or Notices) start coming out?
I'm using this brief respite to thin client files and tidy my desk.

Thanks (0)
Replying to adjadj:
avatar
By djtax
12th Mar 2024 10:11

I would go one step further in your last comment -HMRC as a whole is not fit for purpose!

Thanks (0)
avatar
By moneymanager
11th Mar 2024 10:07

"MTD ITSA, you know it makes (no) sense"

Thanks (0)
avatar
By 2TunTed
11th Mar 2024 10:17

Readers will be familiar with the tale of the small boy and the screwdriver and I am reminded of the tale every budget time. If you want to keep tax simple and rational then don't let a politician any where near it. All the more so if the government is desperate to pull some rabbits from the hat pre-election. As for the chancellor receiving expert guidance and council from the boffins at HMRC and the treasury it would be generous to say that you can take a horse to water but not make it drink.
Complexity? Not a problem for professionals surely but makes no sense to the country as a whole

Thanks (0)
Replying to 2TunTed:
avatar
By djtax
12th Mar 2024 10:16

Expert guidance from boffins at HMRC and Treasury? Didn't know there were any left!

Thanks (0)
avatar
By jonspe
11th Mar 2024 10:25

Brown used to be the arch-complexitiser but Sunak and Hunt have taken on that mantel.
Making the tax system more complex is a useful way (useful that is for the commie Treasury) to increase taxes overall on a stealth basis and, more importantly, to make it much more difficult for more enlightened leaders in the future to rationalise the completely absurd, anti-enterprise system so deliberately engineered by the civil servants for their own ends.

Thanks (3)
avatar
By Homeworker
11th Mar 2024 11:18

As CGT is mostly a "voluntary" tax I'm a firm believer in going back to a simple flat rate - possibly of 30%. It would certainly make life easier for those currently having to guess at their level of income when declaring residential gains. But please increase the annual allowance to a reasonable amount! Pensioners with small shareholdings don't know how to calculate gains on shares they may have held for a long time and company reorganisations may result in unexpected gains (Glaxo demerger last year is an example I have had to deal with recently).

Thanks (1)
Replying to Homeworker:
avatar
By Pam Moreland
11th Mar 2024 11:44

Flat rate would be good. I am fed up with having to give the answer 'it depends' when anyone asks what their CGT liability will be. Although it may make a seller feel better as initially we have to tell them the maximum rate on the gain and then once we know their income it turns out to be somewhat lower!

Thanks (0)
Replying to Homeworker:
avatar
By adjadj
11th Mar 2024 14:47

I disagree that CGT is voluntary. I am selling two flats after 29 years of ownership. There is little I could have done in the last 20 years to avoid this situation. Any avoidance measures would have either been very disruptive or incurred considerable costs

Thanks (0)