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Capital Gains Tax reform: Government decision at last

The long-awaited government response to calls to tighten up Capital Gains Tax has come at last - and it’s no change for the moment.

Over the past 18 months the Office of Tax Simplification made recommendations to simplify CGT, on the instruction of Chancellor Rishi Sunak.

OTS recommendations included raising CGT the rates closer to those for income tax and lowering the CGT allowance.

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CGT is tax paid on the profit of the sale of any additional home - a buy to let or a holiday cottage, for example - and currently the rate of tax stands at 18 per cent for basic rate taxpayers and 28 per cent for those in the higher rate threshold. There is an annual allowance of an initial £12,300 on which no CGT would be paid. 

However, the Office of Tax Simplification had called for CGT to increase in line with income tax rates to 20 per cent at the basic rate and 40 per cent at the higher rate, while also lowering the initial amount exempt to just £2,000. 

But now HM Treasury, in a letter sent to the OTS and released online, appears unenthusiastic.

Lucy Frazer MP, financial secretary to the Treasury, says: “These reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC.

“The government will continue to keep the tax system under constant review to ensure it is simple and efficient. Your report is a valuable contribution to that process.”

The Treasury did accept some technical changes recommended by the OTS.

The decision came as part of the Treasury’s tax and administration day earlier this week, outlining possible changes to the tax system.

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  • George Dawes

    No change just like their pathetic dithering over business rates

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    All rip off taxes we are already paying 28% cgt that’s 8% super surcharge CGT that don’t apply to anyone else only LL like me stupid enough to be paying 40% income tax already, (otherwise cheaper CGT rate) No wonder they are dithering at what they were proposing, increasing it to my personal tax rate of 40% the same as Inheritance tax, so there’s the possibility of paying 40% CGT & 40% IHT (80%) why don’t they just take it off our hands and save us all this torture, nothing but grief & penalties, I think that £12.5k annual CGT allowance is not available for higher rate tax payers either. The tax rate should be reduce on a scale according how much tax you actually pay, the more you pay the better rate you should get encouraging business not stifling it and not all the time favouring people who doddle along paying very little or nothing, put that in your think tank.

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    My understanding is that the £12300 allowance is available to higher rate tax payers. Also you would only pay CGT and IHT if you sold the property just before you died. If you pass the property on, only IHT would apply but whoever inherited it would be liable for CGT for any increase in value from the time that they inherited the property to selling it.
    My objection to the present CGT rules is that since the treasury abolished taper relief, CGT is now payable on any rise in value due to inflation. We are paying tax on a “profit “ that isn’t real.

     
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    CGT is an unfair tax and penalizes prudent and frugal people who save and invest early in their lives

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    It was the removal of the Indexation Allowance which has caused so much grief. Basically, CGT is paid on a value created (in many cases) by inflation, which is patently unfair.

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    Agreed, inflation is not profit.

     
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    Peter, as I understand it if you give the property away now you have to pay the CGT on transfer, but you are not finished yet with it, you have to know when you are go to die / the 7 year rule that’s really only 4 as they don’t count the first 3 years as any reduction in IHT, so if you die after 3 years you’ll have paid CGT for nothing and still have to pay 40% IHT.
    Same difference if you sold the property pay the CGT now , when you die pay another 40% of the remnants you have left.
    I agree it ridiculous paying tax purely on inflation or decrease in current value as they have done away with index linking and taper relief.

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    Yes, if you dispose of the property before you die you will have to pay CGT but if you leave it in a will, the recipient would only pay IHT (subject to allowances)and any CGT on the increase in value from the point they inherit it to when they sell it. There would not be any CGT payable on the increase in value before they inherited it.

     
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    Just think how much tax the government would rake in if they brought back taper relief or lowered CGT to something sensible like 5%.

    Firstly some CGT on all the sales that would actually happen instead of a notional 28% that most of us decide not to pay because we keep our houses instead of selling them.
    Then all the SDLT on all the extra property purchasing that a boosted supply would generate.
    Then VAT on all the estate agent and conveyancing fees.
    Then extra income tax and National Insurance on all the extra jobs created for tradespeople due to people wanting to make alterations to the houses they have just bought.
    Then even more extra income tax and NI on the extra jobs created to supply materials for these alterations.

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    Jo, enough of this common sense rubbish! You are taking about the government, they don’t get spoken about with common sense in the same breath

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    Peter, I believe what you say is right but not all things are the same to my mind. Leaving it in a Will is a different matter, if you dispose of the property but by which means, I see a difference between disposing by selling rather than giving it away. I think what I said was right to and all those schemes and allowance don’t apply when talking about London in the main, estate’s over 2m all allowances are washed away.

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    Looking through the comments here I'm amazed that people still seem to think that decisions are made based on 'common sense' or what would work better. Decisions are made almost exclusively for 2 reasons...

    1. money. 2. political power.

    That goes for all politicians in all parties. The consequences are irrelevent, the people making the decisions don't feel them and any fall out can be spun into a different narrative. People still can't seem to grasp that it doesn't matter who's in power, they don't care about me and they don't care about you. They certainly don't care about how much of our own money we get to keep, and the question of ethics or common sense never, ever comes into it. Brand it into your minds people.

    Become as knowledgeable about the system as you can, and apply a strategy to meet your objectives. It's all you can do.

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    I agree Max it will not make much difference who's in government, and it is what it is, we just have to suck it up, paying CGT on inflation is unfair, but life is unfair and I cannot see much changing

     
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    But it could (and undoubtedly would) be far far worse if Labour ever got into power.
    Property owners are the Antichrist as far as they are concerned.

     
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    28% CGT on your property and 40% Graveyard Tax on yourself.

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    More depressing comments it seems,
    I fully agree with the common sense part but can someone please explain to me how inflation cannot be profit?
    I don’t expect I will care much about taxation when I’m dead like many of the above but the unfairness of the way we are taxed does drive me crazy. It makes one wish you stuck with playing monopoly after school.
    Maybe we should all do as I saw suggested by another very irate gentleman and have half our houses mysteriously demolished pocket the insurance money (he believed there’s no tax liability on this) then sell the land for next to nothing and offset the loss against the gain on the half we sell.

    Daft as a brush thing to say maybe, but no more so than the governments drive to get rid of us all.

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    Paul

    It's widely recognised that inflation is not profit and actually reduces the profit in real terms. That's why we have concepts such as Net Present Vale (NPV), Discounted Cash Flow (DCF) and the Time Value of Money - earlier money is more valuable money.

    It all comes down to what extra your "paper " profit can buy you.

    My two top areas of expertise are the price of beer and the price of houses, so I'll use them to illustrate these concepts.

    I remember being able to buy a pint for 2/6, so 8 for £1. Around that time, my mum and dad bought their first hose for around £5000 I.e. equivalent to 40,000 pints of beer.

    Let's assume the same pint now costs £4 and the same house costs £200,000. Selling the house would allow me to buy 50,000 pints - so I could buy 10,000 more pints now than at the time the house was first bought - so the real profit, adjusted for inflation, is £40,000 - I.e. the ability to buy 10,000 more pints - not the £195000 "paper" profit that would be subject to CGT at probably 28%.

    Others have spoken about the abolition of taper relief but even before then there was Indexation Allowance, which was much fairer and so abolished.

     
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    Thanks Robert

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    Pat, I wouldn’t go demolishing my property to get at the land. I will leave that to the Developers in London that has burned down so many Pubs prior to looking for permission
    to build huge numbers of high rise Flats with 2 m2 outside recreational space in the sky (their gardens) and clearly not required.
    Regarding inflation Robert got it right. I think of it in a similar way I call it currency de-valuation.

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