Chancellor Rishi Sunak has put a halt on plans to increase the capital gains tax rate. There is mounting pressure on the government to plug the financial hole caused by the COVID pandemic. Equally, Sunak needs to be mindful of the pressure tax increases have on the UK public. The Office of Tax Simplification has published two reports on Capital Gains Tax and presented these to the Chancellor. They concluded the government should consider reforming it.
What is Capital Gains Tax?
Capital Gains Tax or CGT, is a tax that is applied to the gains from the sale of a person’s possession, or something they own. It is calculated from the profit made, or the increase in value of the sale price against the original purchase price. It includes shares, sale of a business, investment funds, inherited properties, second properties and valuables including art, jewellery, antiques.
Capital Gains Tax on these assets are charged differently to the rates charged on income tax. The rationale for this is the extra burden of risk of associated with purchasing such assets for a gain.
Read more about Capital Gains Tax here.
How much is CGT in the UK?
The rate of CGT is depending on whether the person is a basic rate, higher rate and additional rate taxpayer. Furthermore, it is dependant on the type of asset that has been sold. CGT on residential property is 18% for a basic-rate taxpayer, and 28% for a higher/additional rate taxpayer. CGT on other assets is charged at 10% for a basic-rate taxpayer and 20% for higher rate taxpayers. There is an annual allowance of £12,300 which means any gain under this amount incurs no CGT liability.
Once gains are above the £12,300 allowance the above tax rates are applied. If an asset is owned by more than one person, such as in marriage, both allowances can be applied to the gains. There is an option to transfer an asset to help reduce liability, although there are certain rules in place.
Where an asset is inherited, the effective purchase price is the probate value on the date of death. CGT will come into effect when you choose to sell it. The rate of CGT will be based on the difference between the sale date of the asset and the date it was inherited, if a gain was made.
What Changes Have The Government Made to CGT?
Whilst no increase in the rates have been proposed, the Government have made five recommendations from the report on technical and administrative issues with the tax. They have justified this by saying it would offer practical simplifications for taxpayers.
These include allowing HMRC to extend the reporting and payment deadline for UK property to 60 days; extending the ‘no gain no loss’ window for separation and divorce; expanding specific rollover relief to land and buildings acquired under Compulsory Purchase Orders; and integrating different ways of reporting and paying CGT into one customer account.
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