“…Take time when time cometh, lest time steale away”, was John Heywood’s adage to ‘Make hay while the sun shines’ in his 1546 collection of proverbs. Old words perhaps, but Rishi Sunak’s recent request for the Office of Tax Simplification (OTS) to review Capital Gains Tax (CGT) is a sign of the sun coming out. In other words: an opportunity to revisit some of your future wealth planning.
The Chancellor of the Exchequer’s request follows the report published by the Office for Budget Responsibility (OBR). The Government’s manifesto commitment to not raise Income Tax, National Insurance or VAT, has limited the Chancellor’s options in respects to paying for recent recovery measures. The full financial implications of the pandemic remain unknown. What is known is that the cost of the responding support measures introduced by the Government have been huge. Furthermore, the need for a significant rebalancing of the national books in order to accommodate the costs is clear. It’s perhaps no surprise that what is considered to be “favourable tax treatment” would be highlighted as an area to bridge the deficit in Government spending through higher CGT receipts.
What we know so far
Discussions to date around the review seem to infer a shift to simplify the regime, but also to raise tax revenue. Rumours afoot suggest a particular focus on the CGT annual exempt allowance, currently set at £12,300; being potentially cut or abolished entirely. Some are suggesting a move from the more favourable CGT rates of tax, to an alignment with the less favourable Income Tax rates.
Many out there will cite previous rumours around the Business Asset Disposal Lifetime Limit being abolished completely. What instead followed was a significant cut in the Lifetime Limit.
It should be noted that everything is on the table. The Chancellor’s letter highlights this, with the emphasis appearing to be on allowances, exemptions, reliefs and the treatment of losses within CGT, as well as the interactions of how gains are taxed compared to other types of income.
What happens next?
It’s too early to be certain about any likely changes but it appears CGT may be about to lose some of its attraction as a comparatively low-tax environment for the wealthy and high earners.
The opportunity this all presents
Now could be the time to look at the sale of any assets earlier rather than later. For anyone considering disposing of an asset, the OTS review should serve as an opportunity to explore the thought.
If you’ve already planned to sell or dispose of an asset, now might be the time to bring your plans forward. Crystallising historic gains and paying the CGT at a potentially lower rate, whilst the ‘sun shines’, could be more beneficial than waiting for the review to conclude.
For you or maybe your spouse with unused CGT allowances the message is the same. The time to use those allowances is nigh, or face the possibility of losing it. Doing so will in essence give you certainty as to the CGT treatment.
As mentioned in my colleague Steve’s recent article “CGT Review Announced”, it’s a good time to liaise with your adviser to identify current and future exposure. Courtiers can look at alternative mitigation measures and incorporate any plans within your existing strategies.