Rishi Sunak could raise Capital Gains Tax ‘with immediate effect’ – Britons may pay double
Rishi Sunak says ‘all support will be reviewed in budget’
Rishi Sunak, Chancellor of the Exchequer, has been tasked with steering Britain through the economic downturn brought about by the ongoing COVID-19 crisis. It is expected, in his upcoming Budget, Mr Sunak will address a number of economic issues, with speculation taxes could be raised to recoup some of the cost of the pandemic. Capital Gains Tax (CGT) has been one of the levies discussed – a tax on the profit of certain items sold when they increase in value.
It is the gain made which is taxed, rather than the amount of money a person receives, and some assets will be tax-free.
However, a change to CGT could impact a number of Britons, and understanding what could occur is likely to be key to many.
Paul Joyce, head of Mergers and Acquisitions at Mazars’ London branch, commented on Capital Gains Tax and potential changes.
He firstly provided insight into what could happen with the levy in mere weeks.
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Mr Joyce said: “We may well see an increase in CGT rates with immediate effect, potentially to align them with Income Tax rates.
“This means anyone selling their business immediately after the rate change would find themselves potentially paying double the tax that they would have if they’d sold their business the day before the Budget.
“As this would clearly have a significant impact on entrepreneurs at an individual level, the risk of this change coming into effect on March 3 has seen a number of business owners exploiting ways to realise their capital gain prior to any announcement.
“In the longer term, it would also reduce incentives for entrepreneurs to invest and build businesses.
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“This may well have a longer term detrimental effect on innovation and start-ups as the current differential in tax rates actively encourages the building of capital value versus extracting value as income.”
However, Mr Joyce also took the time to acknowledge what is likely to happen at the start of March.
He stated any immediate changes to CGT seem less likely as a result of the economic impact and ongoing lockdown.
Mr Joyce added: “We may well see some signalling of future changes or a more gradual change, potentially beginning at the Budget date.
“We predict an announcement of an intention to change CGT with a date attached would likely encourage a number of owners to begin the process of selling their business, with the intention of realising all, or a significant proportion, of their capital gain ahead of any changes.”
Mazars has therefore called upon the Chancellor Rishi Sunak to offer further clarity with regards to his intentions for Capital Gains Tax in the short and medium term.
The organisation has said a clear timetable should be laid out for any changes to be made, to provide Britons with the greatest amount of detail.
This, it said, would avoid businesses and business owners making “knee jerk” reactions to shorter term tax changes.
It would also ensure there is no “cliff edge” when it comes to tax affairs throughout the coming months.
It is expected any major changes to taxation as it currently stands will be introduced in the March Budget.
However, there has been recent discussion when it comes to Capital Gains Tax and the potential next steps to be taken by the Government.
A 2020 report commissioned by the Chancellor by the Office for Tax Simplification (OTS) made suggestions on raising CGT to be more in line with Income Tax rates.
The report also made suggestions on reducing the current CGT allowance which currently stands at £12,300 to somewhere between £2,000 and £4,000.
However, the suggestions made within the OTS report are merely recommendations and therefore do not have to be followed by the Government going forward.
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