Shropshire business owners and investors need to be prepared for tax increases that could be on the cards following a report commissioned by the Government.
Francesca Hutcheson, Tax Director here at Dyke Yaxley Chartered Accountants, says the warning followed the publication of a report from the Office of Tax Simplification (OTS).
“This major review of the Capital Gains Tax system is likely to have real and wide-ranging consequences for local businesses and investors, and it’s vital that entrepreneurs are ready for change.”
Francesca says there were clear indications in the published report that Capital Gains Tax rates could be increased in the next Budget.
“With the Government under pressure to find ways to fund the cost of the Coronavirus crisis, it will come as no surprise that there are strong signals of an increase being planned in the near future.
“Business owners and investors who have been thinking about a sale or exit may be well advised to accelerate their plans and bank the lower CGT rates before any changes are introduced. It can take many months, and sometimes years, to achieve a successful sale of a trading company, so it would be prudent to take action now in order to start the process.”
Francesca says the CGT regime was extremely complicated as there is no single rate of tax that applies to gains on disposal of capital assets – it can be anything from 0% to 28% with multiple rates in between.
“In the much-anticipated review from the OTS, there are wide-ranging recommendations as to how the CGT regime could be overhauled and modernised. And the report suggests that aligning Capital Gains Tax rates more closely with Income Tax rates – currently up to 45% – would be a sensible starting point.”
Other changes suggested include: the reduction in the Annual Exemption (from £12,300 to somewhere between £2,000 and £4,000); increased digitalisation by moving to real time CGT for all transactions; and improved reporting by investment managers.
“Worryingly, the report also questions whether the current uplift in valuation for assets on death should be retained. How this could be enforced though remains to be seen – is it realistic to expect children inheriting assets on the death of a parent to have a full record of the original cost and any enhancement expenditure on those assets?
“We will have to wait for the Office of Tax Simplification’s second report, due in early 2021, to find out more technical details but would recommend that anyone currently looking to exit business assets and investments push for early completion wherever possible.”
