Rishi Sunak has promised multiple times that he is “willing to do whatever it takes” to keep the economy afloat in the face of coronavirus. In putting this into practice, the Chancellor has thus far altered rules for mortgage payments, tax arrangements and employment income among others.
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On July 13, Mr Sunak sent a letter to the OTS which could reveal what his next target may be.
He requested that the OTS undertake a review of Capital Gains Tax (CGT) and the aspects of how this tax is levied on both individuals and smaller businesses.
As quoted from the letter: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible, as set out in the agreed terms of reference.
“This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.
“In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
CGT is a tax levied on the profit when a person sells an asset that has increased in value.
Usually, it is associated with the buying and selling of shares and other investment instruments but it can also be applied to personal financial arrangements.
People may not realise that they may have to pay CGT when selling personal possessions.
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If a person sells a personal possession for more than £6,000, they may have to pay CGT on the profit.
The government detail that the following possessions could have the tax levied on them when sold:
- Jewellery
- Paintings
- Antiques
- Coins and stamps
- “Sets of things” such as matching vases or chessmen
To work out the gain, the government detail that the person will need to work out the difference between what they paid for the item and what they sold it for, minus certain costs associated with the sale, examples being fees or VAT.
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CGT could also be applicable when a person sells their home.
A person may have to pay some CGT if all of the following criteria is not met:
- The person has one home and they’ve lived in it as their main home for all the time they’ve owned it
- They have not let part of it out – this does not include having a lodger
- They have not used part of it for business only
- The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
- They did not buy it just to make a gain
It should be noted that everyone has a CGT tax-free allowance of £12,300.
CGT could also impact beneficiaries on inheritances.
Usually a beneficiary of an inheritance will not be liable to pay CGT.
Inheritance tax is usually the only tax that people need to concern themselves with when a person dies and passes on their assets.
However, if a beneficiary eventually sells an asset handed down to them for a profit, they may have to pay a CGT liability.
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