Capital gains tax: a 2020 update

By August 26, 2020Financial Planning

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).

A review of capital gains tax (CGT) was ordered by the Chancellor in July 2020. Many believe that an increase could be on the horizon as the government seeks to plug the hole in the public finances – which has widening following the COVID-19 lockdown and generous policies such as the recent stamp duty holiday and VAT cut. In this article, our Oxford-based financial planning team here at WMM offer a brief recap on how CGT works in 2020-21, and what possibilities may be in store for the system in coming months.


CGT: A brief overview

When you sell (i.e. “dispose of”) an asset such as company shares or a property, you often pay tax on the profit you have made – assuming it has risen in value (i.e. capital gains tax). In the 2020-21 tax-year, you can generate up to £12,300 in such profit before you may need to pay CGT. Certain assets are currently excluded from CGT – your main residential property being an important example.


What might happen to CGT in 2020?

As mentioned above, the government is presently looking for ways to improve the CGT system and, plausibly, also ease some of the financial strain put on the Treasury from the pandemic. The Office of Tax Simplification have passed their thoughts on possible changes being considered with a review passed to the Chancellor’s to consider what goes ahead. So, what are some of the possible outcomes which could affect your financial planning?

Option 1: CGT rise

One possible result of the review is a recommendation to increase CGT rates – possibly so that it matches one’s income tax bracket (as it used to many years ago). This proposal was, in fact, put forward in 2019 by the Institute for Public Policy Research (IPPR), which argued that this could raise £90bn over 5 years.

Option 2: reducing allowances/exemptions

Another possibility is that certain assets which are currently exempt from CGT become liable to it upon their disposal. Exemptions on betting, pools and lottery winnings come under the spotlight. It is unlikely, however, that family homes could become subject to the CGT upon their sale in light of the government’s recent measures to stimulate movement in the UK housing marketing (e.g. the stamp duty holiday). Another possibility is that the £12,300 yearly CGT allowance could be scrapped or reduced, thus bringing in more tax revenue to the Treasury.

Option 3: overhaul

Of course, it could be that the review recommends a complete revamp of the UK’s taxation system – perhaps moving the country more towards a “wealth tax”. Whilst reform is arguably needed regarding the UK’s cumbersome and complex tax system, this outcome is unlikely. Such a large, radical change would require careful, cross-departmental planning and need several years to carefully implement. At present, rather, the emphasis appears to be to find quick, non-radical ways to raise government revenues.


Conclusion & invitation

The above suggests just some of the possibilities that might result from the 2020 CGT review. At this stage, it is impossible to say with certainty which outcome will emerge, yet it’s important for each individual to prepare as best they can with their financial planner if any of the above may affect your wealth and finances.

If you are interested in starting a conversation about your financial plan, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.

You can call us on 01869 331469