Should you be worried about Capital Gains Tax?

Speculation about the possibility of Capital Gains Tax rates being aligned with Income Tax rates is nothing new.  Certainly in the tax planning world this is something that we had been forced to consider at every Budget for many years, especially as economic times have been more difficult than we might have liked.

Rates of Capital Gains Tax in the United Kingdom are really rather generous.  Disposals of non property assets can trigger a charge of 20% on gains and disposal of property assets can trigger a charge of 28%.  Business Asset Disposal Relief (formerly Entrepreneurs Relief) is not nearly as generous as it once was, with the Lifetime Allowance having reduced over the years, however it can mean a Capital Gains Tax rate of only 10% on the sale of business assets.

While planning around Capital Gains Tax is notoriously difficult, there are still a host of reliefs and ways in which crystallization of a gain and the consequent liability can be deferred.

Given the public perception that Capital Gains Tax is only typically paid by wealthier people, it certainly would appear that increasing the rates to align them with one’s own Income Tax position is a political open goal.  Few in the general public would shed a tear at the idea that a particularly wealthy individual would find themselves with a potential Capital Gains Tax rate of 45%.

While in theory this would be a great source of additional income for the Treasury, this potential has to be balanced with the typical fears of financial flight every time tax rises are considered, but also (and perhaps more realistically) the fact that it is just those individuals that suffer Capital Gains Tax that would be able to deploy their resources to plan around being caught by these higher rates.

It should also be noted however that Capital Gains Tax does not hit just the very wealthy.  Anyone who is considering selling a small business or a second home can face a Capital Gains Tax liability and indeed, few people realise that a Capital Gains Tax liability can bite on gifts, not just sales.

While aligning Capital Gains Tax and Income Tax rates would likely be unpopular with the traditional voting base of the current governing party, who knows what the future will bring, especially if we have a change of government?

For what it may be worth, I believe that alignment of rates is an inevitability – however I do not believe it will be happening anytime soon.  When it does happen there is likely to accompany the increased rates a raft of measures designed to soften the blow, including the rebasing of asset values to a more recent date and potentially an increase in allowances.

As with any point around tax it is always a good idea to take advice from your trusted professional to see if there is anything you could consider doing now.