Capital Gains tax is a type of taxation on gains you make from making profits on selling assets. For example, you could sell a valuable painting and you might owe the UK Government for any profit you make on the sale.
More explanations can be found on our guide to tax and stocks.
UK tax laws could change in the near future due to the events of 2020 – and Capital Gains Tax could be affected. If you have any assets or investments, you need to hear what has been proposed!
What Is the Current Capital Gains Tax?
This current tax year (2020-2021), the Capital Gains Tax threshold is £12,300. This means you only pay tax on the amount of profit from a capital gain over £12,300. Most people pay 10% in tax on Capital Gains over this threshold, but this can increase depending on your income and if the gain is from a property sale.
How Can I Avoid Paying Capital Gains Tax?
There are no ways to avoid paying the tax you rightly owe. Some strategies can be used to ensure you don’t pay more tax than you need to. For example, you could utilise an ISA allowance, or you could offset Capital Gains profits with losses.
A UK accountant can help with these and other effective methods.
What Changes May be Coming?
Due to the UK Government providing a cash injection to businesses during the pandemic, it is expected that Rishi Sunak and his team will take another look at current tax laws as a way to recoup some of the money handed out.
This is an area the government has been looking at as part of an expected tax overhaul. It asked the Office of Tax Simplification (OTS) to review this in July 2020. The OTS then published their findings later the same year.
The report produced by the OTS highlighted four key areas, namely:
- Capital Gains Tax rates
- Capital Gains Tax annual exemption amounts
- Capital Gains Tax relief for businesses
- Capital Gains Tax and lifetime gifts
It is not the first time they have questioned the current Tax laws. Many experts have identified it as an area of UK tax that encourages questionable behaviour. Because Capital Gains Tax rates are lower than income tax rates for most people, it has become an avenue for illegally mitigating tax obligations by concealing other income as a Capital Gain.
What Did the OTS Recommend?
It may come as no surprise then that OTS is recommending to the UK Government that these rates should be increased to line up with income tax rates more closely.
Moreover, the OTS notes that many investors sell off assets to the same value of the Tax threshold each year as a way of taking profits over many years without having to make any tax contributions.
For this reason, they also recommend slashing the threshold from the current £12,300 to somewhere between £2,000 and £4,000.
The report discusses other proposed changes related to inheritance tax and business relief.
How Does This Affect the Everyday Person?
If this tax is increased and the tax-free threshold on profits is cut by over 75%, this could affect lots of UK residents.
Whether you plan to sell a home, rent one out for a second source of income or buy assets like stocks and shares, you need to know about these potential changes.
Any long-term investors and those rich with assets should seek out their trusted UK accountant and arrange a consultation. Although changes have yet to be implemented, being prepared for what could come and how to implement other advantageous tax strategies should commence now.
Help from Yorkshire Accountancy!
For help navigating complicated Tax laws and any changes to Capital Gains Tax, don’t hesitate to speak with Yorkshire Accountancy.
Our helpful team are on hand to discuss your options with personalised advice.