Emma DowdView Profile
A report commissioned by Chancellor Rishi Sunak, amongst other recommendations, has suggested a review of Capital Gains Tax, with the possibility of raising it. The move would impact those with second homes and unshielded assets but could potentially raise billions of pounds and go towards repaying what the Government has spent in tackling the Coronavirus pandemic.
What is Capital Gains Tax?
Capital Gains Tax is a levy paid on profits or gains made when someone disposes or sells assets like property or shares in companies. Currently, the first £12.5k of capital gains is exempt from tax.
A very small portion of the population paid Capital Gains Tax in 2017-18: only 0.5% (265,000 people contributing £8.3bn). Meanwhile, 60% of the population paid income tax, (31.2 million people paying £180bn).
Why might capital gains tax increase?
A report by the Office of Tax Simplification (OTS), commissioned by Chancellor Rishi Sunak, suggested several changes. Among them was reducing the exemption threshold from £12.5k to between £2k and £4k. The Government could also raise the rates to bring them more in-line with income tax rates.
As mentioned, the OTS report outlined most gains are concentrated in a small number of people who pay ‘proportionately less tax’ than the average taxpayer.
The report also called the current rules on Capital Gains ‘counter-intuitive’, and that they encourage the creation of ‘odd incentives’.
Another recommendation was further changing Entrepreneur’s Relief (recently renamed Business Asset Disposal Relief), so the allowance focuses on retiring business owners. This would be in addition to the recent BADR deduction from £10m to £1m.
According to the OTS report, these proposed changes have the potential to raise the treasury up to £14bn.
Those most likely to feel the impact would be those with second homes or unshielded assets.
A potential downside of these changes is it could negatively impact owner-directors of small companies, who might have funds set aside for pensions. Additionally, those people the changes are aimed at may just change their financial habits so to avoid paying more tax.
Coronavirus and Capital Gains
Unless you’ve been living under a rock for most of the year, it’s been impossible to miss the Coronavirus’ impact. The Government has spent a significant sum on supporting businesses through incentives like the Furlough Scheme. The proposed changes to Capital Gains Tax could go some way towards recovering those funds.
Will the Capital Gains review affect my MVL?
An MVL, or Members Voluntary Liquidation is a process designed to liquidate solvent companies. The directors may wish to retire, or the company may have come to the end of its useful life. One of the benefits of an MVL is the potential opportunity to claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief). With the proposed lowering of the exemption for Capital Gains Tax, it could reduce the MVL’s benefits.The Capital Gains review and MVLs
How can my company apply for an MVL?
If your company is in a position where an MVL would be a more tax-efficient, profitable way to close your company, speak to us today. Our standard MVL price is £1,695 + VAT & expenses, and our licensed insolvency practitioners can guide you through the process, potentially allowing you to claim Business Asset Disposal Relief.Applying for a Members Voluntary Liquidation
A report from the Office of Tax Simplification (OTS) commissioned by the Chancellor has outlined several suggestions for changes to how Capital Gains are taxed. If implemented, the changes could raise up to £14bn for the UK Treasury, and go some way towards repaying the amount spent combatting the Coronavirus. While the measures could clamp down on “odd” and “counter-intuitive” tax arrangements, there is some concern it may lead to a change of habit rather than generating more income.