In July 2020, Chancellor Rishi Sunak ordered an Office of Tax Simplification review of Capital Gains Tax (CGT), prompting much discussion around the possibility of increases and what this means for investors.
How likely is a tax rise?
An increase in taxes is a concern for us all. But with the real economic impact of COVID-19 still relatively unknown, we must resign ourselves to the near certainty that rises are on the way. The CGT review is a sign that the government will leave no stone unturned. What is not yet clear is the extent of the reforms the Chancellor intends.
One thought is that the mere threat of a change to CGT could swell the treasury's coffers. We often see an increase in enquiries from clients wanting to ‘take profits’, especially with the historically low rates of CGT, in an attempt to 'get ahead' of any potential tax hikes.
At Investec, while we won't try and predict the future, we are always keen to engage with clients about various possibilities and what measures can be taken, if necessary.
How can you plan for CGT rise?
There are some simple measures you can take to make the most of the intricacies of CGT.
Declaring losses: Remember to declare capital losses on your tax return. You can carry forward these losses to a future tax year, and they could prove invaluable. You can go back up to four tax years if you have forgotten to claim a capital loss, and even further if the losses occurred before 5 April 1996.
Using allowances: Every individual has an annual exempt amount of £12,300, or £6,150 for trusts (2020/21). For married couples and those in civil partnerships, using both of your allowances can save thousands of pounds in CGT.
When should you plan for a tax rise?
CGT is just one of several taxes that we can expect to be scrutinised in the coming months. The current review of CGT isn’t due to close until October 2020, so the Autumn budget might be safe. But thinking ahead is an important element of tax planning.
If you want to discuss how to maximise your tax allowances when investing, please speak to your IFA or one of the Financial Planning team at Investec, Guildford. Your call could save you a lot of money.
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