The UK tax impact of COVID-19
January 28, 2021
Director and Head of Tax Advisory
Kreston Duncan & Toplis, United Kingdom
The COVID-19 crisis has impacted many areas of society, and for the UK government it has resulted in huge levels of spending to support businesses and individuals through the pandemic.
The government’s current debt stands at £1.8 trillion, and it’s expected to borrow £400 billion in total this fiscal year as the country continues to work through uncertain times. To compensate for this, there’s little doubt that UK taxes will rise – and soon.
Chancellor Rishi Sunak recently commissioned a report by the Office for Tax Simplification (OTS). OTS has now published its initial findings, which recommend a major overhaul of capital gains tax (CGT) to help the government recover some of its expenditure. Proposals include:
• The possible alignment of CGT rates with income tax
• Measures against the retention of profits in small companies to extract as capital when ceasing, rather than taking dividends during a company’s lifetime
• Taxpayers not benefiting from both an inheritance tax exemption and CGT uplift when someone dies.
Currently, there are four rates of CGT. Basic rate income tax payers pay 18% on second homes and buy-to-lets, and 10% on other assets; for higher-rate taxpayers the rates are 28% and 20%, respectively.
Landlords may be set to make the biggest losses once these measures are put into place, but they might be better off holding onto their buy-to-let properties rather than incurring a CGT charge by selling up. Alternatively, we may see a surge in landlords selling properties before the changes come into play. Each individual’s circumstances will be different.
The report has also called for the government to reduce the annual CGT allowance, or annual exempt amount – which currently means the first £12,300 of gains from assets such as shares and property are free of CGT. This could reduce to between £2000 and £4000.
Since the government is on track for a £400 billion deficit this year due to COVID-19, it’s likely that the Chancellor will be encouraged to make significant changes in the coming months. Indeed, such measures are anticipated to be announced in the Chancellor’s next budget on 3 March 2021.
These proposals, if implemented, will have major implications on businesses and taxpayers both in the UK and overseas. If you’d like advice on CGT or IHT, get in touch with our experts today.