CAPITAL GAINS TAX is a levy which has to be addressed by many individuals at some point in their lifetime. And new data has revealed receipts have increased recently.
Capital Gains Tax (CGT) revenue has risen to a high of £9.5billion in the 2018/19 tax year, according to figures from HMRC. This was an increase from the £8.8billion shelled out by Britons in the tax year before. However, it is worth noting the number of people who were required to pay the tax did fall slightly.
In 2018/19, 276,000 taxpayers had to meet a CGT bill, when compared to the 281,000 people in 2017/18.
Capital Gains Tax is a levy charged on the profit when a person sells or disposes of an asset which has increased in value.
It is the gain which is made on the sale which is subject to tax, rather than the amount of money a person receives.
CGT must be paid when individuals sell certain items known as chargeable assets.
- Most personal items worth £6,000 or more, aside from a car
- Property which is not a person’s main residence
- A main home if it has been let out, used for business or it is very large
- Shares not in an ISA or PEP
- Business assets
Because a Capital Gains Tax bill could end up substantial, many people are looking for legal ways to reduce the final amount they have to pay.
While the process can often be complicated, there are moves many people take each year to shield themselves from a bill.
One way by which Britons avoid paying the levy is by placing their money into an ISA or self-invested personal pension (SIPP).
These forms of investment are often free from taxes on income and gains, and allow Britons to save £20,000 and £40,000 a year respectively.
In addition, CGT is usually not paid on gifts made out to spouses or civil partners.
In this sense, St James’s Place, a financial planning organisation, suggests: “By transferring assets in this way, you can take advantage of your combined CGT allowances.
“It might also be sensible to split gains over two tax years to make use of both years’ allowances.”
Finally, it may be worth taking advantage of the annual CGT exemption, which stands at £12,300 in the 2020/21 tax year.
Any gains within this amount do not incur any tax, but the allowance cannot be carried forward into future years.
Therefore, Britons are urged to make the most of the allowance while it is still valid.
In the last month, the Chancellor of the Exchequer, Rishi Sunak, has ordered a review into UK capital gains tax.
Mr Sunak made the request to the Office of Tax Simplification (OTS), and the body has launched a survey into the matter.
In a letter to the OTS, Mr Sunak wrote: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.
“In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.”
With the announcement of the review, it has been speculated the Treasury could be looking to increase capital gains taxes in the coming months.
Doing so could raise money to help meet the rapidly increasing cost of the COVID-19 crisis.
However, a source from the Treasury told the Times reform of CGT was “not in our sights” and that the review was standard practice.
Further clarity is expected in due course, but the Autumn Budget is likely to provide insight into the Chancellor’s approach to all taxes going forward.