As clever as we may be, rocket scientists we are not! However, it doesn’t take a rocket scientist to understand the Chancellor of the Exchequer will soon need to start plugging the massive £300billion hole in the public books. What could this possibly mean? Put brutally, less public spending coupled with higher taxation.
Reading between the lines, the Office of Tax Simplification has recommended a “major overhaul” of Capital Gains Tax, estimating this alone could raise an extra £5billion per year (up from £9.6billion last year). Fewer than 1 in every hundred taxpayers were liable to CGT (276,000 in 2018-19) so this could prove popular.
So, what is Capital Gains Tax (AKA CGT)? CGT is designed to target “gains” that are realised on certain assets when they are sold. The best example is second properties. Think about it, you bought a house 30 years ago for £100,000, sell it now for £250,000 the difference (or the gain) of £150,000 has never been taxed. Therefore, CGT is payable on disposal. Every person has an annual exemption of £12,300 (where the rate of tax is 0%). On gains above the exemption, the tax rate is 18% or 28% for residential property. Whereas, income tax is charged at 20%, 40% or even 45%, aligning CGT rates with income could be an easy win.
Many investments that rely on shares and equities for the majority of their income would also become caught.
The problem is, CGT is relatively straight forward to avoid where you get the right advice. Your investments could be ISA wrapped or put into a pension thereby avoiding any CGT tax on them and properties could be flipped between being your main residence and an investment every few years whilst staircasing use of the CGT exemption – all you need to do is write to HMRC and “designate” which property is your main residence.
As always, get the right advice and contact your local experts to ensure your very own Financial Fortress! Remember, avoiding tax is entirely legitimate – tax evasion is not!
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