There has been a lot of talk about what was in the budget but the absence of some policies may have more of an impact on the economy. Investors may have feared a torrent of rises in Rishi Sunak’s 2021 budget but ultimately many of the fears simply didn’t materialise as many taxes including Capital Gains Tax were kept at the same rates.
Capital Gains Tax is applied when assets are sold and they increase in value since the time they were initially purchased. Currently, the Capital Gains Tax rate sits at 10% of profits at the basic tax rate (18% on residential property) or 20% for higher rate taxpayers (28% on property). The big fear of investors was that the chancellor would increase the rates to bring them in line with income tax.
Nor was Capital Gains Tax the only area that lacked the bite predicted. There were plenty of rumours swirling around that a one off ‘wealth tax’ for high worth individuals where those with assets over a certain value would pay a fixed rate charge. Also conspicuous for its absence was any increase in Inheritance Tax where there was talk of wholesale reform.
However, the chances are the chancellor has simply kicked the can down the road for the time being. The economy remains in a precarious situation and he will not be of a mind to rock the boat too much. He’ll also want to keep his stock high with the public with the ongoing possibility of Sunak succeeding Boris Johnson as Prime Minister in the medium term.
Rishi Sunak did request a review of Capital Gains Tax which was published in November so it is definitely an area he is eying up to raise some much-needed funds. Aside from the need to raise additional funds, there is a belief that it distorts taxpayers behaviour as well as being overcomplicated. The report recommended the alignment with income tax as it encourages investors to seek tax as an asset gain rather than income.
There was an acknowledgement that increasing rates could persuade asset holders to continue to hold on to the assets for inheritance with the possibility that this wouldn’t be taxed at all if structured correctly. Any reform would likely need to be more extensive and include the way Capital Gains Tax interacts with Inheritance Tax.
Many investors had desperately disposed of assets to avoid a larger bill that never transpired. That may still come to pass and ultimately any decision is a political one and one that lies firmly at the feet of Rishi Sunak. For now, he’ll be happy to see how things pan out this summer before deciding in time for the Autumn statement.
Are you concerned by any future rise in Capital Gains Tax? Alston Asquith has offices in London and Hertfordshire and can arrange a call to provide some initial advice on how navigate Tax Law.
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