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The British government has provided a lot of support for businesses and individuals during the pandemic, but potential measures around Capital Gains Tax to recoup some of the money, may impact you. So what can you do to limit your losses with prudent Capital Gains Tax planning.

They say forewarned is forearmed, and that is most definitely true in the world of tax. For example, if you complete your self-assessment tax return on the 6th April, you at least know what you’ll need to stump up, even if you don’t pay it until the 31st January the following year. Hands up, anyone, who does their return on 6th April!

Seeing the potential

With the way Covid has shown itself to be 2020’s most unwelcome visitor, and all the support the government has put out there, there’s a lot of rumours around the fact that Capital Gains Tax (“CGT”) may be one of the areas the government is looking at, to claw a bit of capital back from the taxpayer.

It’s an area that doesn’t always impact too much on the general wider public and this is why it may be seen as an “easy win” for the Government. But, in the same way as doing that tax return on the 6th April is actually a good idea, so is sitting down and looking at your Capital Gains Tax situation to see whether there is anything you can do now to mitigate potential future changes.

At the moment, the Capital Gains Tax-Free Allowance is £12,300, which means any reported gains are not taxable up to this threshold. Above this level however, tax rates are considerable. If you are a higher rate tax payer, the tax rate for non-residential property and most other assets (excluding cars) over £6,000 is 20% and for residential property the rate is 28%.

High impact

We are dealing with unknowns here, but if the government were to increase Capital Gains Tax for residential properties from 28% to, say, 40% – and I do believe it could be a double-digit increase – it’s going to have quite an impact. If you run the numbers on, for instance, a £100,000 gain on a second property, this could result in another £12,000 of tax to pay.

I would always advise that individuals sit down with their accountant or advisor and look at what their financial position is now and how exposed they could be to any changes in the future, before it becomes too late. It may drive your decision to sell a particular asset sooner rather than later.

It’s not a question of panicking, but of preparing. By mapping out your financial position and determining what assets you own, including properties, investment portfolios and shares – you may be able to mitigate the risk of any hikes in Capital Gains Tax by better structuring your future plans.

 

Although there is no concrete evidence that Capital Gains Tax will go up as a result of this pandemic it’s always sensible to think ahead and begin planning now.

Are you unclear on any COVID-19 related issues that your business is facing? Get in touch and we will be happy to assist you

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About the author

Lee Meredith

Lee has spent over 12 years in the profession, qualifying with a regional West Midlands practice before gaining further Audit experience with a Big 4. He is a qualified Chartered Accountant and holds professional membership with the Institute of Chartered Accountants England and Wales (ICAEW).

His portfolio of clients spans a wide range of sectors. Lee enjoys building a good working relationship with clients providing a high quality service.

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