Capital Gains Tax Shakeup for COVID Recovery
H&H Land & Estates consider the Chancellor’s announcement to review CGT to recover national Corona Crisis expenditure.
Announced on Tuesday, the Chancellor Rishi Sunak has initiated a review of Capital Gains Tax (CGT) in order to fill the financial black hole left by the cost of responding to the global pandemic. Beyond the very human cost of the Corona crisis experienced in the UK, there has also been a real financial cost accumulated over the last 4 months with numerous economic interventions to protect the economy. Here H&H Land & Estates examine the plan to offset this public expenditure, with the Office for Tax Simplification (OTS) set to examine the levy charged on gains arising from assets, including property.
The government defines Capital Gains Tax as “a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.” It is this gain made that is subject to tax, not the amount of money received on a sale. Rules relating to these chargeable assets look to be targeted by the Chancellor to raise enough public funds to sustain a Covid-19 recovery.
Tim Sedgewick, Associate Director & Chartered Surveyor of H&H Land & Estates, comments on the questions surrounding the possible shakeup:
“This could usher in a major shift in the UK’s tax collection regime. So far Capital Gains has been insulated from any radical policy changes, but Corona looks likely to alter this. Without any clear details from the Chancellor, we can only speculate at this point. But there are a number of potential areas where the exchequer could raise funds. For example, will we see the end to Business Asset Rollover Relief? This has commonly been used by farmers selling farms and land for development, as they can roll over ‘the gain’ into a new business property such as a farm, and delay paying the tax.”
Before any exact decisions are made, the OTS has called for evidence or views relating to the complexities of Capital Gains Tax and how it could be improved. This consultation will bring to the fore any concerns and help affected businesses voice their position. This online survey will be open until the 20th October 2020 on the gov.uk website.
Tim continues: “There have always been exemptions to Capital Gains, including tax relief on the sale of a principal private residence. While we don’t know at this point if this will be scrapped, it is one element that could be subject to change. What this means for sellers and investors is potentially a new approach to capturing wealth on asset sales, to help pay back the vast spend on the Coronavirus response. For a long time, farms have benefited from benign tax arrangements, so it remains to be seen what impact any alterations to the tax regime will have.
“Another CGT target could be an ending to annual exemptions or a change to their value. Currently individuals can make wealth gains of £12,500 tax free, and we had been seeing trends of steady increases over the last decade. Maybe the pandemic will bring a sharp stop to that or a reduction in these exemptions.”
Ultimately it is clear that the depleted public finances will have to be recovered from somewhere. With the pause in Stamp Duty on house sales benefiting the property sector, this CGT shakeup could be the sharper end of a two-pronged response to get the economy’s balance sheet back on track.
“If anyone is considering a sale, it is only right that the correct team can advise you and guide you through these unchartered waters. From the outset it is important to receive guidance from those most up to date with tax policy and potential future changes. Here at H&H we’ve got our ear to the ground and will be working hard to tailor our advice as we gain more information.”