Rishi’s coronavirus capital gains tax hike

It has already been widely reported that the Chancellor, Rishi Sunak, intends to raise more money from capital gains tax (‘CGT’) in order to plug the hole in the country’s finances. This week, the Office of Tax Simplification has published the first of two reports at the Chancellor’s request. If its recommendations are implemented, it will see the biggest shakeup of the CGT regime for 30 years.

What are the recommendations?

The key recommendations are:

1. An alignment of CGT and income tax rates

2. A very substantial reduction in level of the CGT annual exemption. This is currently £12,300 per individual and it could fall to as low as £3,000!

3. A reduction in scope for employees to benefit from CGT from shares they have received from the company (possibly involving curbs on things like EMI option schemes).

4. The abolishment of business asset disposal relief (formerly Entrepreneurs’ Relief) which had already been reduced to £1 million in the last budget.

5. The abolishment of Investors’ Relief which was only introduced in 2016.

Forbes Dawson view

It seems certain that some or all of these proposals will be introduced, possibly as early as the next budget which may be in March 2021. The headline message is that much of the general population will be impacted and in particular, entrepreneurs and company owners, wanting to incentivise their workforce.

We are already advising many clients on how to crystallise capital gains in the current tax year to take advantage of the current 10 and 20% CGT rates whilst they last. In most cases it will not be possible to accelerate the sale of a business, but there are other methods of triggering a disposal, such as share reorganisations and gifts.

Similarly, any companies looking to put an approved share option scheme into place would be wise to do so in the current tax year. There is a good chance that any existing EMI share option schemes will be protected from the general increase in CGT rates.

Whatever the detail, this whole area is almost certain to play a fundamental role in balancing the books (if indeed this is possible after the billions of pounds that have been thrown at the virus!).

 

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