Chancellor call to review Capital Gains Tax could deal another blow to entrepreneurs

Publications featured in include: This is Money
  • CGT on main residence politically risky but buy-to-let exposed

The Chancellor Rishi Sunak has asked the Office of Tax Simplification to investigate how capital gains are taxed for both individuals and smaller businesses in the UK.

Graham Boar, partner at our Letchworth office comments:

“Raising headline rates of Capital Gains Tax would deal another blow to business owners, who are already reeling from a cut to Entrepreneurs’ Relief earlier this year. Raising CGT would make building and selling businesses in the UK even less attractive.”

“After any CGT increase, we are likely to see a reduction in transactions of assets as the tax is only paid on transactions – this could cause major distortions. For example, if any CGT were imposed on homes then that would reduce the number of property transactions, drain liquidity from that market and stop labour mobility.”

“Imposing CGT on the homes people live in would be a major political risk.”

“Rather than a wholesale abolition of PPR we are more likely to see a toughening of rules around selling gardens for development and so on.”

“CGT is often perceived as a tax on the rich and is generally more politically palatable than taxes on employees or workers. However, it makes up a very small part of tax take at 5% and raising it could have major negative impacts. Is it worth it?”

“The costs of collection for CGT are already high as most people do have a capital gain above the annual exemption. This means that if the Treasury lowers the exemption, the tax take would be diluted down by the costs of administration.”

“I would not be surprised if the outcome of this review also included a toughening of CGT rules surrounding the passing on of assets at death under shelter of inheritance tax reliefs. This has been threatened for some time.”

“Buy-to-let property is already taxed harder than any other type of asset but CGT on buy-to-let is still at only 28% compared to 45% top rates of income tax. So buy-to-let could be targeted for more CGT as there is less little public sympathy for landlords especially if policies are presented to promote getting young people on the housing ladder.”

“We might also see a shortening in the amount of time that individuals have to pay CGT, through real-time-reporting. That accelerate tax receipts for the Government and bring in a one-off windfall.”

 

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