The UK government is considering changes to the tax system so that the rate paid on realised gains is more closely aligned with income tax. The Office of Tax Simplification (a statutory body) has issued a report advocating changes, but whether they are implemented is a matter for the government to decide.
The changes will impact the property market. Capital Gains Tax (CGT) on the realised gain from residential properties is charged at a basic rate of 18% with higher and additional rate payers paying 28%. Income tax is charged at a basic rate of 20% rising to 40% and 45% for higher and additional taxpayers. If the proposals are implemented the capital gains rate will increase closer to, if not matching, the income tax rate
Another of the proposals is the reduce the annual tax-free allowance of £12,500 p.a., possibly to between £2,000 and £4,000.
Whilst many people agree that the system needs updating and various anomalies removed, the fact that such a measure is being considered now is primarily due to the huge deficit the government is running up during the current COVID-19 crisis. It must generate more income from somewhere and one of the options is capital gains tax.
The proposals have drawn both praise and criticism. Some feel that it is a ‘wealth tax’ and an increase in the rate is long overdue, while others feel it will disincentivise entrepreneurs, businesses and investors.
Another report on the technical and administrative issues of the changes is due out next year. In the meantime, we can expect the various lobby groups to put forward their arguments in an attempt to influence the measures that are adopted. Watch this space.
