Rishi Sunak tax reform: Will Joe Biden’s CGT plans force the Chancellor to ‘follow suit’?

Rishi Sunak may have to break income tax promise says expert

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HMRC recently released tax receipts for the 2020/21 tax year and within this data, it was shown the Government collected £10.61billion in CGT, an increase from £9.82billion in 2019/20. Analysis of these figures detailed the amount of CGT collected by the state has risen 36.2 percent in three years and has nearly tripled over the last decade.

Last year, the Government collected more in CGT than it did in Stamp Duty (£8.7billion) for the first time since 2008/09.

Three years ago, Stamp Duty was worth £5billion more to HMRC than CGT and as President Joe Biden eyes up increases to CGT in America, NFU Mutual warned the Chancellor could follow suit as CGT becomes more prominent on the Treasury’s books.

Sean McCann, a Chartered Financial Planner at NFU Mutual, commented on this: “Capital Gains Tax is paid when investors realise gains on shares or properties that aren’t their main residence.

“Property prices have rocketed, in part due to the stamp duty holiday, and this has likely contributed to the increase in CGT the government has collected as some second property and buy to let owners have sold up.

“A volatile year in the stock market with large fluctuations may have encouraged some investors to sell, realising gains that would have been taxed.

“The lifetime limit of Entrepreneurs’ Relief was reduced from £10million to £1million last year too, which would have led to a bigger tax bill for those selling businesses.”

On top of property and shares, CGT can also be levied on most personal possessions worth £6,000 or more (excluding cars), business assets and even a main home if one has let it out, used it for business or it’s very large.

Currently, basic rate income taxpayers will face a CGT levy dependent on various factors but higher rate taxpayers will be charged at either 20 or 28 percent.

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Sean went on to break down what consumers should look out for in regards to CGT

Watch out for gifting

Sean pointed out many people are unaware that CGT is payable on gifts, which could be made worse by inheritance tax considerations: “There are a number of traps with CGT that people unwittingly fall into.

“Most notably, few people realise giving away property, shares, or other investments can trigger a tax bill.

“For example, if a parent gives property or a portfolio of shares to their children, that’s deemed to be a disposal and could be liable for Capital Gains Tax.

“It’s also possible the gift could be hit with a subsequent Inheritance Tax bill if the person making the gift dies within seven years.”

Remember to use all your allowances

Sean went on to break down how consumers may be able to reduce their CGT bills: “Each person has a £12,300 annual tax-free allowance before they have to pay CGT.

“Simple steps such as sharing ownership of assets between spouses or civil partners before they are sold, or staggering sales across tax years can help reduce capital gains tax bills.

“Those giving away business assets or making gifts to trusts may also be able to defer capital gains tax.

“The key is to take advice before selling or making gifts.”

Sean concluded by examining what changes may be on the horizon for CGT in the UK: “It’s well known that CGT is in the Chancellor’s crosshairs following a review into the tax last year by the Office of Tax Simplification.

“Despite fears that rates would be aligned with Income Tax, Rishi Sunak left CGT untouched in the March Budget but this may only be a temporary reprieve.

“Across the Atlantic, President Joe Biden is reportedly considering nearly doubling the CGT rate for the wealthiest Americans from 20 percent to just under 40 percent and it will be interesting to see if Mr Sunak follows suit with his own rate increase later this year.”

Full details on CGT rules can be found on the Government’s website and impartial guidance can be sought from the likes of the Money Advice Service and Citizens Advice.

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