Changes to CGT to be announced in the Autumn Budget?
In July 2020, Rishi Sunak asked the Office of Tax Simplification to carry out a review of capital gains tax (“CGT”), and this has led to rumours circulating in the UK press that the Chancellor will announce changes to the rate of CGT in the Autumn Budget 2020, as part of the Government’s plans to rebuild the UK economy.
Coronavirus has brought large parts of the economy to a standstill, and the Government has had to spend billions to support workers, businesses and the NHS. The total cost of this Government support will not be known until the crisis is over, but according to the Office for Budget Responsibility, it could be between £263bn to £391bn for the 6 April 2020 to 5 April 2021 financial year.
After borrowing and spending billions on the COVID-19 response so far, the Chancellor is reportedly considering different ways he could earn back funds for the Treasury, and these could include an increase in CGT rates or other changes to CGT.
The Times reported on 30 August 2020 that “the government is planning to raise … capital gains tax”, and that “the Budget blueprint would force people to pay capital gains at the same rate they pay income tax”.
CGT is charged on any profits (the ‘gains’) you make when you sell (or transfer) an asset. If the total of any gains realised in the year, minus any losses, exceeds your annual allowance (currently £12,300), the excess is liable to CGT. The rate of CGT which is payable currently depends on whether you are a basic or higher rate taxpayer, with the rate for most types of gains being either 10% (for basic rate taxpayers) or 20% (for higher and additional rate taxpayers). Higher CGT rates of 18% (for basic rate taxpayers) or 28% (for higher and additional rate taxpayers) apply for the sale of any property that is not your main home, including buy-to-let properties and business premises.
Perhaps the simplest potential change to CGT would be to revert back to the pre-April 2016 CGT rates of 18% (for basic rate taxpayers) and 28% (for higher and additional rate taxpayers), for all gains.
A more controversial change would be to increase CGT rates to bring them into line with income tax rates (i.e. increasing CGT to 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers), which would be likely to face a stiff outcry from many Conservative MPs and party donors, even though it could be argued that this would be in line with Nigel Lawson’s quest to tax all forms of income in the same way in the 1980s.
Other potential options here could include reducing or amending the CGT annual allowance (currently £12,300) or reducing the lifetime allowance for investor’s relief (currently £10m) to mirror the £1m lifetime allowance limit for “entrepreneur’s relief” (now “business asset disposal relief”) which was introduced by the Finance Act 2020.
Since 11 March 2020, the lifetime limit on gains eligible for business asset disposal relief has been reduced from £10m to £1m, although business owners can still enjoy 100% relief from CGT on any gains they make from selling their business, if they sell to an employee ownership trust.
The Treasury is yet to set a date for the Autumn Budget 2020, but it is expected to take place by the end of November this year. If Rishi Sunak does use the Budget to announce any changes to CGT, these could either be introduced with effect from the date of the Budget or with effect from the start of the new financial year on 6 April 2021.
In view of the above, if you are at the early stage of planning to sell your company or business, and you are concerned by the rumours circulating about potential changes to CGT, then you may wish to consider bringing your sale forward, with a view to ensuring that any substantial gains you may make on any such sale will be taxed at current CGT rates, rather than any increased CGT rates which could be introduced by the Autumn Budget 2020, or to consider the possibility of selling to an employee ownership trust.
Please contact Teri Hunter, Peter Woolley or any of the Moorcrofts’ Corporate Team, if you would like to discuss how we can assist you with the sale of your company or business. Our substantial experience in this area includes advising on sales to employee ownership trusts.