You may have seen recently that Chancellor Rishi Sunak has written to the Office for Tax Simplification, calling for a review of capital gains tax (CGT). Discover how you can limit your exposure to changes in CGT taxation if you act now!
A likely rate rise?
It is almost inevitable that taxes will have to rise to help meet the near £400 billion bill the government has amassed up in supporting the British economy through this Covid pandemic.
Changes to CGT should not come as a surprise. Many experts have been predicting for some time that this tax was vulnerable to change. Will it be aligned with Income Tax?
Interestingly only 276,000 people reported and paid CGT in 2018/19, paying almost £9.5 billion.
What do I pay CGT on? And what rates?
If you dispose of a ‘chargeable asset’ — personal possessions worth £6,000 or more (apart from your car and your main or recent home) — you are likely to trigger a CGT liability.
You only pay on total gains above your annual tax-free allowance (£12,300 in 2020/21). Higher-rate or additional-rate taxpayers pay 28% on gains from residential property and 20% on gains from other chargeable assets such as shares. Basic-rate taxpayers pay 18% on residential property and 10% on other gains — if the amount is within the basic income tax band. Gains above this band are taxed at 28% and 20%.
What about my personal Limited Company Shares if I close my company?
At the moment CGT is charged at 10% on the disposal under Business Asset Disposal rates (this used to be called Entrepreneurs Relief) provided you meet the relevant selling criteria.
If CGT rates are aligned with income tax as expected, then that means that you could end up paying 4 times as much tax when you close the company after the changes are made.
If you are considering closing down your Limited Company it may be best to act now to take advantage of the lower rates.
We can assist with the Members Voluntary Liquidations (MVL), where the company is solvent.
When will the changes to CGT come into force?
We cannot answer this of course as Mr Sunak did not give any indication of timings. The normal course of practice would be to take effect from the new tax year in April. The Government does not normally introduce retrospective legislation and although a change mid tax year has happened in the past, it is unusual.
This means that you would have about 4 months to get your company through the MVL process to utilise the 10% rate.
Time is against you! Act now!
How do I reduce the CGT?
There are several options currently available which take advantage of the existing CGT reliefs and rates. One thing which is certain, you must act now to ensure the best results!
If you require any help with any aspects of Capital Gains Tax or have any other related questions on MVL’s or CVL’s contact us today to arrange a FREE consultation, we have Chartered Accountants and Tax Advisers in Canary Wharf, Essex and Manchester waiting for your call.