Capital gains tax (CGT) was thought to be ripe for reform in the run-up to Spring Budget 2021, but that particular can was kicked down the road.
The Government’s 2019 election manifesto vowed not to raise the rates of income tax, VAT or National Insurance for the duration of this Parliament.
While that pledge was made before the impacts of the COVID-19 pandemic became clear, it left the door open for changes to CGT and corporation tax.
We now know changes to corporation tax will kick in from 2023 – but what’s happening with CGT, both in 2021/22 and possibly beyond?
CGT in 2021/22
A five-year freeze on the main CGT annual allowances is currently in place, both for individuals and trusts, up to and including 2025/26.
For individuals, the annual exempt amount arising from CGT remains at £12,300. Don’t forget, though, that this can be doubled for married couples.
What that means is if you have an asset that you plan to sell for more than you paid for it, you might have to pay CGT if it’s worth in excess of £12,300.
How much CGT you pay depends on the type of asset you’re disposing of and your marginal rate of income tax.
Basic-rate taxpayers disposing of residential property that is not their main residence pay 18%, while higher and additional-rate taxpayers pay 28%. Gains on all other assets are taxed at either 10% and 20%, depending on specifics and circumstances.
For assets held in trust, the CGT annual exemption is worth up to £6,150.
While this freeze might seem generous to some, the Treasury expects to net an extra £30 billion from it by 5 April 2026.
Calls for CGT reforms
Calls for change are resurfacing. Just last month, the Office for Tax Simplification (OTS) published its second report into revamping CGT.
The headline proposal from the OTS’s first report, published in December 2020, called for CGT rates to be brought in line with income tax rates.
The number-one recommendation in its second report involves HMRC integrating the three main ways of reporting a capital gain into a new ‘single-customer account’ to act as a central hub for CGT data.
“Integrating CGT into the single-customer account would reduce the need for people to fill in a full self-assessment return just because they need to report a capital gain,” said Bill Dodwell, tax director at the OTS.
Among the 13 other proposals was a call to extend the UK property tax return deadline from 30 days to 60 days. The requirement to file a property tax return within 30 days, instead of the annual self-assessment, took effect from 6 April 2020.
Another recommendation was to give separating and divorcing couples more time to transfer assets between themselves without triggering CGT charges. This perhaps reflects soaring divorce rates during the pandemic.