It is speculated that capital gains tax may see a hike in an attempt to raise money after the expense of the coronavirus pandemic.
Chancellor of the Exchequer Rishi Sunak is considering an overhaul of the Capital Gains Tax. Currently, capital gains tax is charged differently than income tax and is lower for higher earners.
Experts are considering whether the tax would be reformed so that it would be the same as income tax. If that happens, what would it mean for you? Will it have implications on other taxes?
What is Capital Gains Tax?
Before we move ahead, let’s first understand what capital gains tax is and how it differs from the income tax.
Capital gains tax is imposed on profit made on possessions above £12,300. The capital tax for primary taxpayers is 18 percent and 28 percent for others.
While, on the other hand, the rate of income tax is 20 percent, 40 percent, and 45 percent based on the amount earned.
Besides, capital gains tax is applicable only for individuals, personal representatives, and trusts. So, if you own a limited company, the capital gain tax won’t be applicable.
How Can It Impact You?
An increase in capital gain tax (CGT) would primarily impact private investors owning buy-to-let properties and non-tax-wrapped investments.
So, any change in capital gains tax will affect those taking advantage of pension allowances and pension Isa. This is based on the statistics from HMRC that show a few high-income payers that are paying a considerable amount of capital gains tax.
What does this mean?
Although CGT is thought to be paid by the high-income group, people with lower income are most commonly included in its scope.
Did you know that more than half of the individuals paying CGT pay the basic income tax rate or no income tax rate at all?
Besides, it may make it challenging to calculate tax. For instance, if you are a basic-rate tax player and have a gain that lies in the higher-rate threshold, you will have to calculate tax at two rates. Now, this issue wouldn’t arise if you are a high-rate taxpayer.
How Can We Help?
Multiple assets are subject to CGT when disposed of, such as bonds, stocks, and precious metals
As you may have seen, CGT is a very complex area. There are many exemptions and relief which may help you in saving tax. It is thus recommended to seek the advice of a local tax accountant who will help you to calculate your CGT and claim any relief.
If you are planning to sell a part of your business or a personal asset, we can help you with the tax planning and help you with the best available opportunities for you to reduce or mitigate tax liabilities.
As of 5th. April 2020. CGT for selling a residential property needs to be declared and taxes paid with in 30 days of the sale being processed.