The Covid-19 pandemic has taken a huge toll on the world – not just in terms of health, but financial too.

 

As Chancellor Rishi Sunak looks at ways to recoup some of the billions of public funds spent on tracking and tracing, furlough and various other business support schemes, many people are wondering if Capital Gains Tax (CGT) will be in his sights.

 

Furthermore, a recent report from the Office of Tax Simplification (OTS) has also suggested that the entire CGT system could be made fairer, prompting further speculation that changes could be on the cards.

 

So, while 2020 has taught us that nothing is certain, here’s what could be on the table – and what it could mean for you…

 

A move in line with income tax

The OTS has recommended that, to simplify the CGT system, rates should be more in line with income tax, which could lead to some of the current rates being doubled.

 

Currently, basic-rate taxpayers pay 10 per cent CGT on assets, and 18 per cent CGT on property, while higher-rate taxpayers are charged 20 per cent and 28 per cent respectively. These rates are considerably less than those for income tax – 20 per cent for basic-rate taxpayers and 40 per cent for those paying the higher rate.

 

Therefore, if the recommended changes are brought in, lower-rate taxpayers in particular would face a double of their rate of CGT.

 

Lower allowances

At the moment, the allowance for CGT is £12,500 – anything below this is exempt. However, the Chancellor is considering slashing this to just £2,000, meaning thousands more people will be liable.

 

However, to offset this, the OTS report recommends exempting more personal items, such as artwork or antiques; if fewer assets are subject to CGT, then those who only make small profits will not need to start paying it.

 

Reassessing relief

Potentially the most significant change for businesses is the reassessment of both Business Asset Disposal Relief and Investors’ Relief, both of which the OTS says are not working effectively.

 

Proposals include targeting Business Asset Disposal Relief to an older demographic by reintroducing a minimum age, encouraging it to be used by those who have built up their businesses over time and have held their shares for at least 10 years. Further amendments would also include raising the minimum shareholding to 25 per cent.

 

As for Investors’ relief, the OTS argues that since this has been barely used since its introduction in 2016, it may as well be scrapped.

 

One thing’s for sure; businesses across the country will be keeping a closer eye than ever when Budget day rolls around on March 3.

 

If you’d like to talk to us about CGT and how it could impact you, get in touch on 01642 244090.