Chancellor looks to raise funds
Sunak reviewing changes to capital gains tax
Rishi Sunak: tax on the agenda
Chancellor Rishi Sunak is considering a tax raid on the wealthy as he seeks ways of recovering the costs of the pandemic.
The capital gains tax annual allowance could be reduced and the rates aligned more closely with income tax.
Cutting exemptions and doubling rates could raise £14bn, according to a review commissioned by Mr Sunak in the summer.
Capital gains tax is paid on the profits made when selling shares or property over a certain threshold.
The Office of Tax Simplification says the tax, levied at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, could be doubled if it were brought in line with income tax.
At the moment, the first £12,300 of capital gains is exempt. About 50,000 taxpayers reported profits narrowly under that threshold last year. The OTS’s report suggests reducing the threshold, possibly to between £2,000 and £4,000.
The main losers of the proposed change would be those who own second homes or assets not shielded from tax, and owner-directors of small companies who often hold cash within their businesses for use as a pension when they retire.
The chancellor is keen to raise money to help fill a gap in his budget left by the Covid-19 crisis. However, he will be minded that changes to CGT would hit core Tory voters.
While it is estimated that the proposed change would, on paper, raise £14bn the OTS advises that it would be a lower figure as taxpayers change their behaviour.
Sceptics played down the prospect of Mr Sunak adopting the OTS report given that he has not adopted its previous recommendations on inheritance tax and income tax reforms.
Other options includes changing entrepreneurs’ relief, recently renamed business asset disposal relief, with an allowance focused on retiring business owners.