Is Rishi coming for your lunch?

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It is looking as though the annual allowance on capital gains tax (CGT) in the UK is set to be slashed under a "far-reaching review commissioned by Rishi Sunak" the Chancellor of the Exchequer, according to the Financial Times.

The anticipated changes could possibly see CGT raised from its current rate of 20% to around 40%. This tax would mainly apply to wealthy individuals, those owning second homes or assets outside tax-favoured vehicles, such as those in ISA's.

Reforms to the UK Tax systems come following the Covid-19 outbreak which plunged not only the UK but the globe into economic recession. Rishi Sunak implemented the Furlough scheme to support businesses of all sizes across the UK. This came at an estimated cost of £14bn a month, whilst the controversial Eat Out to Help Out scheme saw diners put away around £522m in government subsidised meals.

Clearly, there is a large and growing hole in the economy, and a response needed from the Treasury.

Rishi Sunak's half-price offer is a boost for Indian restaurants in Britain  - Telegraph India

CGT is charged on gains at 10 per cent for basic rate taxpayers and 20 per cent for higher and additional rate taxpayers. In contrast, income tax is charged at a basic rate of 20 per cent, rising to 40 per cent and 45 per cent for higher and additional taxpayers.

According to the FT, "In the 2017-18 tax year, £8.3bn of CGT was paid by 265,000 individual taxpayers who reported £55.4bn of net gains (after deduction of losses). This compares with £180bn of income tax paid in the same tax year by 31.2m individual taxpayers."  These average out at ~£5,750 per person in income tax vs. the ~£31,000 in CGT paid by the quarter or so million people with CGT liability. With a possible increase of up to 40%, the average CGT bill would comfortably surpass £50,000.

The current CGT threshold is £12,300, meaning any gains over this amount will result in taxation. Data from the 2017-18 tax year showed that 50,000 people reported net gains just below the threshold, and an Office of Tax Simplification (OTS) report suggested that the government consider reducing the £12,300 threshold, possibly to between £2,000 and £4,000.

CGT proposals reaction: 'It will drive smaller landlords out of sector, no  question'

Other recommendations included changing entrepreneurs’ relief — recently renamed “business asset disposal relief” — with an allowance focused on retiring business owners. The policy was subject to reform in March, after Mr Sunak reduced the lifetime allowance from £10m to £1m.The OTS also suggested scrapping the “capital gains uplift”, which allows beneficiaries to inherit an asset at market value on the date of death rather than the value on the date of purchase.The Treasury said it did not comment on future tax policy outside fiscal events and would consider the OTS report in due course. “The government’s priority right now is supporting jobs and the economy,” the Treasury added.

Please note Tax relief depends on circumstances and may be subject to change.

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