A leading tax expert is advising investors to “plan your disposals” after new Capital Gains Tax figures have raised speculation of an increase in the near future.
Figures from HM Treasury released yesterday show that its CGT receipts hit £9.8 billion in the 2019/20 tax year, up four-fold from the £2.5 billion achieved a decade ago.
Now a tax specialist - Shaun Moore, tax and financial planning expert at Quilter - warns: “This is likely to just be the start of record years for the amount brought in by CGT and preliminary data from the Office for National Statistics is already showing this will be the case.”
At the most recent budget the Chancellor froze the annual CGT allowance at £12,300 until 2026 at the earliest and Moore says there is no guarantee the tax rate will stay at its current level as the government scrambles to find revenues where it can.
“Clearly with asset prices rising and frozen or decreasing allowances, more people will ultimately be brought into scope to pay CGT, and as such it is a good idea to plan your disposals thoroughly and ensure they are done in the most tax-effective way” he adds.
And he cautions: “The amount paid in CGT dwarfs what is brought in by inheritance tax and as such will be considered a more attractive tax to raise for the Treasury. The fact that 41 per cent of CGT came from those who made gains of £5m or more suggests an increase in rates is far more likely than any other policy tweak, particularly given the government’s triple tax promise not to raise VAT, income tax and national insurance puts the Treasury in somewhat of a bind.”
Moore says that aigning CGT to income tax rates - which was proposed last year by a review into the issue, commissioned by Chancellor Rishi Sunak himself - could bring in 40 or 45 per cent tax on larger capital gains.
“Aligning to income tax rates will mean everyone is likely to face at least a 100 per cent increase in the rate payable, but this is higher for the wealthiest with a 125 per cent increase in rates paid for 45 per cent taxpayers” Moore continues.
“Planning now to beat any kind of reform that is mooted for the forthcoming budget in the Autumn will be the most effective strategy for people given the relatively generous rates applicable to gains in 21/22.”
There is expected to be an Autumn Statement outlining some short term fiscal changes towards the end of this year, with a full annual Budget in the early spring of 2022.