Potential changes ahead for Capital Gains Tax

There are rumoured changes to Capital Gains Tax - potentially as part of a 2021 reform. We thought it would be useful to set out the current CGT basics - with a view to what might happen in the near future. Please note that any speculation is exactly that - we won't know anything for sure until we hear it directly from the government.

Capital Gains Tax Facts

  • Capital Gains Tax is a tax on the gains made on investments, property, art or shares held outside of an ISA or pension fund when you sell or transfer them.

  • Excluded from this are Premium Bonds, a rise in the value of your main home or government gilts.

  • Annually you can cash in or gift £12,300 worth of gains tax-free.

  • After this there are 2 sets of tax rates - one applies to residential property and the other to assets, excluding residential property.

  • If you are a basic rate tax payer you'll pay 18% on any gains derived from residential properties you own. You'll pay 10% on any other assets.

  • Higher rate tax payers pay 28% on gains made from residential properties and 20% on everything else.

A hike in CGT is generally perceived as a way for Rishi Sunak to start to recover some of the many billions the government has needed to spend during the pandemic. The Office of Tax Simplification was asked to review CGT earlier this year which has prompted speculation ever since.

One school of thought is that the Chancellor could revert to a blanket rate across all assets - either at the current rate or higher, possibly in line with income tax levels. Another change could be to amend the current £12,300 annual allowance or reduce the lifetime allowance for investor's relief.

Any changes are likely to be announced in the Spring 2021 budget but, as we have seen this year, anything could happen and announcements could be made at any time. We are fairly certain that CGT rates won't be reduced so this could be a sensible and opportune time to discuss your tax planning ahead of any increases.

If you are concerned about the potential impact of CGT on your own financial situation, do please get in touch.

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