The Capital Gains Tax system. Is it ‘fit for purpose’?
Chancellor Rishi Sunak has requested that the Office of Tax Simplification (OTS) conduct a review of the current capital gains tax (CGT) system.
Stating that the current system is not ‘fit for purpose’ and that it can ‘distort behavior’; the Chancellor has asked the OTS to review the overall scope of CGT and the rates levied in relation to other taxes. If the system is found to not be working efficiently, the most likely outcome is that the wealthy and possibly middle income earners will be subject to higher tax liabilities.
Capital Gains Tax is incurred when profit is made upon selling an asset that has increased in value. This encompasses property such as second homes, buy-to-let properties or business premises, shares, artwork, paintings and antiques valued over £6,000.
Second homes and buy to let properties incur CGT at a rate of 18% for a basic rate tax payer, and any gains over the allowance from other assets are liable to a levy of 10%. For higher rate taxpayers, the rates are 28% and 20% respectively.
In 2019 / 2020 the Office for Budget Responsibility predicted that capital gains tax would account for around 1.1% of all tax paid in the UK and raise around £9.1 billion. The latest figures show that CGT income is at its highest ever, with a rise of 18% occurring in the last two years.
However, a yearly CGT allowance of £12,300 per individual means that a couple who are married or in a civil partnership may make a profit from share dealing, or selling art works and other assets without paying CGT if their respective share of the profit is below the allowance. Profits on the sale of an individual’s main home are also exempt in the majority of cases.
If the current Capital Gains Tax system is not found to be ‘fit for purpose’, a review of its rules and conditions will most likely take place. It is likely that this will lead to an increase in CGT liabilities in order to assist in paying for the COVID -19 related measures introduced earlier this year.
It is hoped however, that any review will include the simplification of the many administration and technical issues. With many unsuspecting tax payers being unaware of a number of rules; such as being liable for CGT when a parent signs over a property or a portfolio of shares to a child to help out, clearer legislation would be welcomed by all.
If you would like some guidance on Capital Gains Tax and its regulations, or assistance in managing your tax liabilities please contact our dedicated team on 01932 320800 or email firstname.lastname@example.org.