Michael Lansdell, managing partner at Figurit, discusses what taxpayers’ financial situation could be like in the next Budget.
November’s Budget was postponed, but now we’re looking ahead to March, with the treasury contemplating the unenviable task of trying to balance the books after the most challenging period for the economy that most of us will remember. With public spending up, also increased tax reductions and lower tax receipts due to the recession, the government will be looking at ways to raise revenue.
Pre-Covid-19, consultations had been ongoing around Inheritance Tax (IHT) and tax relief on pension contributions, with another review of business rates and Capital Gains Tax (CGT). All of these are key revenue-raising contenders, so there could be a commitment to action announced in March.
CGT - the facts might surprise you
In 2018/19, just 256,000 individuals – or less than one per cent of income taxpayers – made enough capital gains to face a CGT bill. Between them they paid £8.8bn in tax – over £3.4bn more than was collected in IHT. With CGT and IHT often being levied on the same asset (albeit at different times), that the latter was voted the UK’s most hated tax is perhaps unfair.
Of the £8.8bn, £4.8bn was paid by the top 5,000 CGT payers, who had gains of at least £2m. Individuals with gains of at least £500k accounted for just under three-quarters of the CGT collected.
So, the amount of CGT raised from the wealthiest UK taxpayers is a significant proportion of the total. If the chancellor increases tax rates in March, some of these individuals might decide not to realise their gains, resulting in a fall in tax collected.
If you’re one of the relatively small number of CGT taxpayers, this also serves as a reminder that the current annual CGT exemption for 2020/21 of £12,300 is pretty generous. Compared to income tax, returns received as capital gains are – usually – taxed more lightly.
Robust planning and a pragmatic approach are essential to save tax and optimise both your business and personal finances. Figurit, formerly known as Lansdell & Rose, works with a large number of business owners, businesses and individuals. As specialists who provide professional tax compliance, planning, full accountancy services and more, we look at both the detail and the bigger picture, to give advice and quality support.
For more information visit www.figurit.com