Government urged to overhaul CGT
How could changes to CGT affect you? Discover the proposal and tax implications here, along with further commentary and insight…
November 17, 2020
Landlords could be in line for another tax blow as a recent report recommends doubling the rate of Capital Gains Tax (CGT) and cutting exemptions.
The Office of Tax Simplification (OTS) has published a review of the tax, commissioned by Chancellor Rishi Sunak, which revealed £14bn could be raised by making these changes.
Currently, CGT is charged at a basic rate of 10% or a higher rate of 20% on the disposal of assets, with rates of 18% or 28% applying to residential property.
The OTS said to prevent distortions to taxpayer behaviour, the Government should consider bringing CGT rates approximately in line with income tax, which is charged at a basic rate of 20%, a higher rate of 40%, and an additional rate of 45%.
People who own second homes and assets protected from tax would be the most likely to be affected if the recommended changes took place.
The report said:
‘The disparity in rates between capital gains tax and income tax can distort business and family decision-making and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.’
Bill Dodwell, Tax Director at the OTS, added:
‘If the Government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning capital gains tax rates with income tax rates, or addressing boundary issues as between capital gains tax and income tax.‘
Calculating Capital Gains Tax
Capital Gains Tax is a tax on the profit when you dispose – or sell – an asset that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
While the top bands of income tax are both 45% and 40% for people earning more than £50,000, the average CGT paid on the sale of assets is only around 15%.
Some assets are tax-free. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.
Morgan Reach App
Our App includes a Capital Gains Tax calculator that takes into account your other income after allowances, and any capital losses available at the start of the tax year, while you can easily add disposal assets and type to provide you with a calculation.
Contact Morgan Reach today
At Morgan Reach, Our tax experts can provide the clarity you are seeking. We can review or might be able to reduce your tax bill if you fear you are paying too much tax and can use our considerable experience to help you benefit from approved tax planning strategies. Get in touch with us today by completing the form on our website or by sending an email to info@morganreach.com.
