Capital Punishment: Could you be hit by hefty tax rises as a result of Covid-19?
Rishi Sunak has possibly had the toughest inaugural year imaginable in his tenure as Chancellor of the Exchequer.
The COVID-19 pandemic has forced the Chancellor to borrow extraordinary amounts of money - and he now has the great challenge of raising funds to pay it back.
As to be expected, tax is one of the first ports of call to raise fresh funds.
The Chancellor asked the Office of Tax Simplification (OTS) to “undertake a review of Capital Gains Tax and aspects of the taxation of chargeable gains, in relation to individuals and smaller businesses” in July. The OTS has now published the first of two reports.
The headline recommendations are outlined below.
Tax and spend: will he or won’t he?
The Chancellor does not have to accept any of the recommendations provided by the OTS.
As any changes to the system may be seen to detrimentally impact traditional Conservative voters more than others, there will be an inherent political sensitivity to how he proceeds.
But the COVID-19 debt hole needs to be filled, and we should be prepared for the Chancellor to take action.
A second report will be published in 2021 focusing on key technical and administrative issues.
When will decisions on tax reform be made?
The next report from the OTS is due to be published in the early part of 2021 and the next Budget is due to take place in the Spring. If the recommendations from the OTS are to be implemented it would seem the Spring budget would be the opportunity to announce them.
What can you do to prepare for changes to the tax regime?
If you currently have accumulated gains and you are concerned that a CGT increase would affect you, take advice from your solicitor and/or financial advisor now. It can be a good opportunity to mitigate your CGT exposure, even if the recommended changes are not implemented. In recent memory changes to CGT made in 2008 ignited a rush to sell assets (particularly by owner managers of unlisted private trading companies) as the U.K.’s wealthy sought to avoid a much increased CGT charge. The best advice is to begin planning now and don’t leave it too late.
The headline recommendations from the OTS are:-
Tax rates & boundaries
- government should consider more closely aligning Capital Gains Tax rates with Income Tax rates;
- government should consider reducing the number of Capital Gains Tax rates and the extent to which liabilities depend on the level of a taxpayer’s income;
Annual Exempt Amount for Capital Gains Tax
- If the government’s policy is that the Annual Exempt Amount for capital gains tax (£12,300 this tax year) is intended mainly to operate as an administrative de minimis, it should consider reducing its level.
- Where a Relief or Exemption from Inheritance Tax applies, the government should consider removing the capital gains uplift on death and instead provide that the recipient is treated as acquiring the assets at the historic base cost of the person who has died. In addition, the government should consider removing the capital gains uplift on death more widely, and instead provide that the person inheriting the asset is treated as acquiring the assets at the historic base cost of the person who has died.
- The government should consider replacing Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) with a relief more focused on retirement.
26th March 2020
The Law Society of Scotland has issued guidance of how the process can continue during COVID-19.
24th March 2020
Rishi Sunak delivered his first Budget to the UK parliament on Wednesday 11 March.
20th March 2020
A fantastic way to provide a trustworthy person with the power to carry out tasks.