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Possible Capital Gains Tax Changes on the Horizon - What Could This Mean?

on Wednesday, 23 December 2020.

If the recommendations of a recent report by the Office of Tax Simplification (OTS) are adopted, more people may have to pay capital gains tax (CGT) when they dispose of assets.

The report, commissioned by Chancellor Rishi Sunak, has proposed bringing the rates for CGT into line with income tax rates. The report also recommends scrapping the tax-free uplift in asset values on death.

The annual tax-free allowance for capital gains is currently £12,300. The OTS report estimates that reducing this allowance to £5,000 each year would double the number of taxpayers who would become liable to pay CGT.

Aligning the CGT rates with income tax rates would be a way of ensuring that the same rate of tax was paid by individual and business owners regardless of whether funds received were treated as income or capital proceeds.

At present, there is a CGT-free 'rebasing' (or revaluing) of assets on the death of the owner, so that beneficiaries receive the asset at the updated value. The OTS report recommends a 'no gain, no loss' approach, so that the beneficiary is treated as having acquired the asset at the 'historic' (original) base cost of the person who has died. The report also recommends an extension of the availability of holdover relief, so that CGT becoms payable only when an asset is sold, and not when it is transferred as a gift.

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For more information on the proposed changes to Capital Gains Tax, please contact Michael Knowles in our Private Client team on 07500 601063, or complete the form below.

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