In Focus: Tax  

Capital gains tax out of firing line in Budget

Capital gains tax out of firing line in Budget

Investors breathed a sigh of relief as a predicted hike in capital gains tax did not become reality in today's Budget.

Chancellor Rishi Sunak had been predicted to raise the 20 per cent rate to bring it more in line with income tax rates.

But the change did not transpire - at least not in this Budget. While both the CGT annual exemption and the IHT thresholds were frozen until 2026, no further action was taken on either.

Camilla Bishop, head of private client at city law firm DMH Stallard, said: "Nothing in the Budget today stops inheritance tax mitigation as we know it. We can still make large tax free gifts, transfer assets into trust and opt to pay the lower rate of CGT on any gains rather than suffer the death rate of 40 per cent IHT. 

“As predicted, the big overhaul for CGT and IHT is yet to come.”

CGT is payable on assets - such shares - which are sold after appreciating in value since the holder purchased them.

Last year Sunak commissioned a review into CGT by the government's Office for Tax Simplification, saying he was particularly interested in how the levy interacted with taxes on income.

Andrew Dixon, head of UK and international wealth planning at Kleinwort Hambros, said: "The greatest concern among clients is the mooted increase in the 20 per cent rate of capital gains tax, to bring it in line with the current rates of income tax as a means of levelling the playing field."

Dixon said: "Many clients had already been considering if they should crystallise their capital gains tax now at current rates in anticipation the government could raise them, and indeed, in some instances, uncertainty has prompted clients to bring succession plans forward in order to lock in current CGT rates as they are."

Bishop said while CGT may be seen as ‘low hanging fruit’, it was clear the need of the economy was likely to triumph.

Earlier in February, HM Revenue & Customs published its tax receipts data, which showed CGT receipts were the highest they had ever been.

The CGT receipts were tallied at £7.6bn for the tax year to date (April 2020 to January 2021); when looking at the last calendar months, the receipts totalled £10.4bn.

At the time, Neil Jones, tax and wealth specialist for Canada Life, said this could be an indicator that clients were acting ahead of a predicted hike in the CGT rate. 

simoney.kyriakou@ft.com