No CGT rise announced yesterday but ‘tax increases in 2021 are now inescapable’

It was a somewhat unsurprisingly subdued spending review statement from the chancellor yesterday as he unveiled a set of worrying figures on the state of the UK’s finances.

Rishi Sunak

Rishi Sunak announced that the government is expected to borrow £394bn this year, while the level of unemployment had increased to 1.62 million, up 300,000 on last year.

Worryingly unemployment looks set to hit 7.5% next year with 2.6 million out of work; unemployment will come down to 4.4% by the end of 2024.

He also announced that the economy was predicted to contract by 11.3%, which is the largest fall in output for more than 300 years, but looks set to grow by 5.5% next year and 6.6% in 2022.

“Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. And the economic damage is likely to be lasting,” the chancellor said.

But there was a sigh of relief for those working in the property industry and elsewhere as Sunak did not mention any changes to taxes.

There were some concerns prior to yesterday’s announcement that Sunak may look to introduce higher taxes, with widespread speculation that this would lead to a hike in capital gains tax rates.

The government’s tax adviser recently recommended that capital gains tax be overhauled with proposals that could see the number of people hit by the duty rise significantly.

Rishi Sunak is said to be considering proposals by the Office of Tax Simplification (OTS), a Treasury-based body, to reform capital gains tax in light of the economic and fiscal impact of the Covid-19 crisis.

The move has the potential to bring in an extra £14bn by reducing exemptions and doubling rates, according to the review, which was commissioned by the chancellor.

The OTS concluded current CGT rates were too complex, and suggested that the government bring them closer in line with the rates of income tax.

CGT is currently charged at 10% and 20% for most taxable assets, or 18% and 28% for residential property that is not a main home. Income tax is charged at rates of 20%, 40% and 45%.

But the chancellor clearly decided that now is not the right time to make such major changes.

Adam Feather, managing director of Robert Anthony Property, commented: “Yesterday’s spending review was not the right time for the chancellor to announce any tax increases, but it does look highly likely, based on the Treasury’s messaging in recent weeks, that the introduction of tax increases in 2021 are now inescapable.

“But I do worry that higher CGT costs may deter many people from investing in the residential property sector.

“The proposals made by the OTS would radically reform capital gains, but I do not see how this would simplify the tax. It would, in my opinion, merely complicate the existing CGT regime.”

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2 Comments

  1. Robert_May

    It could not be more simple to extend schedule 23 FA  to  include Rightmove, Zoopla, On the Market, Facebook, Gumtree ( all advertising platforms) with the simple stipulation of the platform providing a list of  existing s23 ‘data holders’

     

    With a near complete list of data holders and an additional data requirement that’s less invasive than asking a Landlord for their mobile phone number, HMRC would arm itself with the ability to identify most cases of money laundering, tax evasion and tax not requested that exists within the PRS. It would also  help identify where CGT is due on residential properties where  small property developers are flipping repossessions as their PPR and avoiding tax on the gain.

    Until there  is joined up thinking between the  Chancellor, HMRC and Land Registry it is an embarrassing dereliction of duty that  the  government doesn’t know who should be taxed  or how much they should be taxed on property  sales or lettings.

    Lettings is a £49 billion turnover industry, with a asset value of about £1.26 trillion. It’s inexcusable that HMRC do not have a full and proper grasp of the numbers or stakeholders in housing  as a very significant contributor to the economy.

    I appreciate not everyone who should be paying tax will welcome being taxed but isn’t it fair we all pay what’s due?

     

     

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  2. Landlordinsider

    Worth reminding ourselves that the budget deals with tax changes, the autumn statement does not. So there was never a prospect of CGT changes being announced yesterday. That is something we can look forward to in 2021!

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