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Capital Gains Tax receipts recently gained by HM Revenue and Customs (HMRC) were recorded in the government’s latest statistics, which painted a picture of how tax was being managed this year. They showed a £72million taking in October, a sharp increase from the £4million collected by the government in October 2019. Capital Gains Tax is a levy charged on the profit when a person sells an asset that has increased in value.
The gain is taxed, rather than the amount of money someone receives, but this can still be significant.
Some assets will be tax-free, while others, as the statistics show, incur a tax burden.
However, there may be a reason as to why CGT receipts have increased.
There has been speculation recently that Chancellor Rishi Sunak may seek to increase Capital Gains Tax next year.
As the Treasury seeks to reckon with the impacts of the ongoing COVID-19 crisis, it will need to raise money to fund the increasing financial burden it has incurred.
Consequentially, it is believed many could be selling their assets out of concern rates could rise in the future.
Some groups have called for the levy to be increased to 28 percent, or to be aligned more closely to income tax rates.
At present, the Chancellor is considering the outcome of a report he commissioned the Office for Tax Simplification (OTS) to undertake which relates to CGT.
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The review made a number of suggestions regarding how the levy could potentially be altered in the future.
It read: “The disparity in rates between Capital Gains Tax and Income Tax can distort business and family decision-making, and creates an incentive for taxpayers to arrange their affairs in ways that effectively re-characterise income as capital gains.”
Reforms, the report suggested, could potentially raise £14billion for the Treasury.
Such a review would be most likely to affect middle-income and high-income earners, who should be aware of the potential for change.
Earlier this year, James Norton, Senior Investment Planner at Vanguard, provided insight into managing, and potentially reducing a CGT bill.
He told Express.co.uk: “Everyone has a CGT allowance of £12,300 a year, and like an ISA allowance, it is a ‘use it or lose it’ allowance, which cannot be carried forward.
“Couples can split assets between spouses, so this will mean it is a £24,600 allowance between them.
“Investors should also be investing in a tax-efficient way through SIPPs and pensions.
“The most important thing is to use your allowance. All of them – CGT, pensions, ISAs – where you can, to shelter what you have.”
Capital Gains Tax only needs to be paid on gains above the tax-free allowance, known as the Annual Exempt Amount.
At present, this stands at £12,300, but if OTS suggestions are implemented, this sum could fall also.
The government website has explained Britons may also be able to reduce their tax bill by deducting losses or claiming reliefs, however, this is dependent on the asset involved.
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