Capital Gains Tax

Will Rishi Sunak be looking to increase Capital Gains Tax in his next Budget?

As the Chancellor looks to find the money needed to cover the government's increased and unprecedented borrowing and spending during the Covid-19 pandemic, there is growing speculation that he will be changing the Capital Gains Tax rates in the budget next month.

Although the Prime Minister Boris Johnson has already made it clear that there will not be a return to austerity in public spending, it is expected that Rishi Sunak will need to review the current structure of UK taxes.

Because the government debt is currently at a record high, speculation has been rife for a considerable time that the Capital Gains Tax rates would be increasing as part of wider changes to taxation. However, it may cause some surprise at the suggestion, that these changes could in fact be introduced immediately after the Budget.

For basic tax payers, Capital Gains Tax is generally charged at 10% (currently), but the calls are growing for it to be increased across the board or possibly aligned to income tax rates - at up to 45% for the higher rate tax payers.

However, with regards to residential property, Capital Gains Tax is currently charged at 18% for the basic rate tax payers and 28% on any amount that is above the basic rate. The higher or additional rate tax payers pay 28% on any gains made from residential property, along with personal representatives or trustees of somebody who has died.

Head of Mergers and Acquistions from leading London international audit, tax and advisory firm Mazars, - Paul Joyce, said, "We may well see an increase in CGT rates with immediate effect, potentially to align them with income tax rates."

The government's tax adviser just recently recommended that Capital Gains Tax should be overhauled with proposals that could see a number of people hit sharply by this duty increase.

The review was commissioned by the Chancellor who is considering proposals by the Office of Tax Simplification (OTS), which is a treasury-based body, to look at reforming capital gains tax as a response to the economic and fiscal impact caused by the Covid-19 pandemic and strict lockdown measures.

This move could potentially create an extra £14bn in taxes by reducing the current exemptions and doubling rates, according to the OTS review.

It is hoped however, that given the current economic impact and continuing lockdown, that any changes to the Capital Gains tax will be introduced and phased in gradually, rather than in one dramatic and immediate change.

Paul Joyce also added: “We may well see some signalling of future changes or a more gradual change, potentially beginning at the Budget date.

“We predict an announcement of an intention to change CGT with a date attached would likely encourage a number of owners to begin the process of selling their business, with the intention of realising all, or a significant proportion, of their capital gain ahead of any changes.”

The Chancellor of the Exchequer, Rishi Sunak, has announced that the government will publish the Budget on Wednesday 3rd March 2021.