Capital gains tax hike in weeks. ‘Rishi Sunak’s TOP target’. Act NOW before Budget
Capital gains tax already brings in more revenues than inheritance tax for HM Revenue & Customs (HMRC), and taxpayers could hand over even more of their gains if the cash-strapped Chancellor hikes the levy on 27 October, as many expect. Anybody who fears getting caught out should take action today.
CGT is often labelled the “forgotten tax” but it generates almost £10billion a year for HMRC, up fourfold from £2.5billion in the last decade.
That is far more than last year’s £6billion inheritance tax take, yet too many do not realise the danger and get hit by a shock bill when they sell assets at a profit.
CGT’s relatively low profile makes it a tempting target for Rishi Sunak, who is keen to raise taxes but without denting his chances of becoming next Conservative party leader.
Shaun Moore, tax and financial planning expert at Quilter, warned: “The amount paid in CGT dwarfs inheritance tax, making it a more attractive tax for the Treasury to raise.”
The most likely option is to increase CGT rates in line with income tax, Moore said, which would increase the maximum charge from 28 percent to 45 percent.
The ramifications will hit every taxpayer, he added. “Aligning to income tax rates will mean everyone is likely to face at least a 100 percent increase in the rate payable.”
This will be even higher for the wealthiest, with additional rate taxpayers facing a CGT increase of 125 percent.
Plan now in case Sunak strikes, Moore added, but time is running out.
Tom Selby, head of retirement policy at AJ Bell, also reckons CGT is the Chancellor’s most likely tax target this month.
“The Office for Budget Responsibility (OBR) has already reviewed CGT at the request of the Chancellor and proposed aligning CGT rates with income tax rates.”
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The OBR’s report said this could raise a “substantial amount” for the Exchequer, possibly up to £14 billion a year. The average liability is £32,000. If Sunak follows the OBR’s recommendation, it could easily top £60,000.
Taxpayers risk a CGT bill when they sell assets at a profit, including shares and other investments held outside of a tax-free Isa, as well as paintings, antiques and jewellery, and buy-to-let or holiday properties.
Currently, basic rate taxpayers pay CGT at 10 percent, rising to 20 percent for higher-rate taxpayers. These tax rates rise to 18 percent and 28 percent respectively, when selling an investment property or second home.
If Selby is correct, basic rate tax payers would pay CGT at 20 percent on everything, while others could pay 40 percent or 45 percent.
Property owners will not have time to avoid the tax attack by selling before the Autumn Budget, which is only weeks away.
However, there are other things you can do to reduce your exposure.
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Jason Hollands, managing director of Tilney Investment Management Services, said married couples and civil partners can transfer assets between themselves free of CGT, to double up their exemptions. “You can further reduce CGT by shifting assets into the name of whichever partner pays a lower tax rate.”
The CGT threat makes it even more important to invest inside your £20,000 tax-free Isa allowance, where no CGT applies. “You could sell non-Isa shares or funds then repurchase them within an Isa, to protect future gains.”
Use your annual £12,300 CGT allowance to gains free of tax – and your partner’s allowance too.
Hollands said more sophisticated investors should check out the Enterprise Investment Scheme, where share gains are free of CGT if held for at least three years. “Tax planning is complex, so consider advice,” Hollands said.
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