All eyes on CGT reform in March 2021 UK Budget

Super Deduction

Despite widespread speculation, the recent Spending Review contained no changes to Capital Gains Tax. It was thought that the Annual Tax-free limit might be lowered to boost tax revenues and help plug the growing hole in public finances, especially considering the CGT review by the Office for Tax Simplification suggesting such changes. The report also recommended ways to simplify the CGT regime and pointed to it ‘distorting’ taxpayer behaviour.

It is now expected that the Chancellor will announce key changes to CGT in the March Budget, overhauling the system and bringing rates more in line with income tax.

Currently, individuals selling capital assets can make tax-free gains up to the Annual Exemption limit of £12,300. Many individuals report net gains close to this threshold, a coincidence the OTS believes is due to income and capital being conveniently ‘recategorised’.

What changes are likely?

CGT reform could include:

  • A reduction in the Annual Allowance, possibly to £5,000
  • Assets are inherited at historic base cost instead of using an ‘uplift’; this measure would trigger more CGT charges where individuals sell recently inherited assets

Says Curo’s Head of Tax, Julia Gallagher “Simplification of CGT is long overdue and the current system incentivises individuals to report income as gains in order to take advantage of the generous Annual Exemption and lower rates of tax. It’s also skewed in favour of those who have assets to sell which tends to exclude a large chunk of those on lower incomes”. CGT reform is certainly an area to watch over the coming months.

Higher rate pension relief

We were also surprised that the Chancellor didn’t scrap higher rate pension tax relief, bringing in a rumoured flat rate relief of 25%. Again, this is something we’ll expect to hear more about in the March Budget.

Please contact Julia@[email protected] to discuss your tax requirements and find out how Curo can optimise your tax position. Tel 01527 558539.