Recently, there have been discussions surrounding the proposed changes to capital gains tax (CGT). Capital gains tax is a tax on the profits made from the sale of certain assets such as property, shares, and investments. The current CGT arrangements in the UK permit an annual allowance, as well as the ability to have a lower tax rate for gains made on property sales.
The proposed changes would aim to reduce taxes for low-income individuals, while increasing taxes for those with higher incomes. The main goal of these changes is to make the tax system fairer and more transparent. But what does this mean for you? Here are some of the key points you need to know:
1. Changes to the Annual Allowance
The annual allowance for CGT currently stands at £12,300, meaning that individuals can make up to this amount tax-free in any given tax year. The proposed changes would decrease the allowance to £2,000, which would primarily impact those who hold investments for long periods.
2. Changes to Entrepreneur’s Relief
Entrepreneur’s Relief offers CGT reductions of up to £1 million for entrepreneurs selling a business. However, there has been discussion about phasing out this relief altogether. While the relief will no longer be available for new businesses, it will still be available for existing businesses.
3. Changes to Property Sales
Currently, CGT rates on gains from property sales are lower than those applied to shares and other assets. The proposed changes would eliminate this distinction, so CGT rates for property sales would be the same as those for all other assets. This could impact those who frequently buy and sell property.
4. Increased Tax Rates
The proposed changes would increase the taxes on CGT for those in the higher-income bracket. Those earning £50,000 or more would be taxed at a rate of 40%, while those earning above £150,000 would be taxed at 45%.
5. Potential Impact on Investments
The changes in CGT would have a significant impact on investments. Investors may be discouraged from investing and profiting on assets if they are taxed at a higher rate. This may also cause a decrease in property sales, as investors may hold on to properties longer to avoid paying higher taxes.
In conclusion, while the proposed changes to CGT are aimed at making the tax system fairer, they will have a considerable impact on individuals and businesses alike. If you are an investor, it is important to stay updated on these changes and consider how they may impact your investing decisions.
