COVID-19 Update - 22 July - Capital Gains Tax and Making Tax Digital - Wright Vigar
 In Advice, Blog, News

Capital Gains Tax Under Review

The Chancellor has asked the Office of Tax Simplification (OTS) to carry out a review of CGT to identify simplification opportunities. Inevitably, as the cost of assisting businesses through the coronavirus pandemic has been so high, there is concern that taxes will be raised to help the government foot the bill.

At present the rates of capital gains tax compare very favourably with income tax, as basic-rate taxpayers only pay 10% CGT compared to 20% income tax, and higher-rate and additional-rate payers are charged 20% instead of 40% or even 45%.  Even residential property sales which carry a higher tax rate if they do not qualify as your principal private residence only attract rates of 18% and 28%.  Additionally, there is an annual exemption for every individual, currently set at £12,300, which effectively takes many gains out of charge altogether.

At the time of the last budget, rumours circulated that Entrepreneur’s relief was under threat.  Instead it was rebranded as Business Asset Disposal Relief and capped at a lifetime limit of £1 million. However, this relief is also part of the review to ascertain “areas where present rules can distort behaviour or do not meet their policy intent”.

The Office of Tax Simplification has published a short survey to assist them with their review. If you wish to contribute, you can access the survey here:

­­­­­Making tax digital is back on the agenda

The government has published its long-term plans for Making Tax Digital. The original introduction was postponed amid claims that it was being rushed in and suitable software was not available.

At present, only VAT is within MTD, with businesses above the VAT threshold of £85,000 required to keep digital records and provide VAT returns through software. From April 2022, the programme will be extended to all VAT registered businesses and from April 2023, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000.

HMRC are keen to make it plain that Making Tax Digital will affect the way that taxes are reported rather than the level of tax that is collected. However this seems to contradict another suggestion which is that MTD will help to minimise avoidable mistakes, which apparently cost the exchequer £8.5 billion in 2018-19.

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