In yesterday’s spending review the Chancellor, Rishi Sunak, indicated that the economy is predicted to grow by 5.5% next year, but that economic output will not return to pre-crisis levels until Q4 2022. The government has provided £280bn to help get through the pandemic and total UK borrowing is set to reach £394bn this year, equivalent to 19% of GDP and the highest level in peacetime history.
With government debt racking up, big questions are being asked about where the money is coming from to pay for it and how long before we start?
Back in July, Mr Sunak, ordered a formal review of Capital Gains Tax (CGT), and by publishing his letter to the Office of Tax Simplification (OTS) – which also asked the OTS to report on how Capital Gains Tax compares with other taxes – fired a warning shot to businesses, to be prepared that changes may well be coming. It’s important to note that the Office of Tax Simplification is a government-run organisation, which is telling another government department that it’s advisable to raise taxes…
The initial findings have now been published – and they don’t make a comfortable read for many business owners. According to the review, about £14bn could be raised by potentially doubling the rate of Capital Gains Tax bringing it in line with income tax (with higher rates at 40/45%), and – adding another blow – cutting some of the exemptions.
Capital Gains Tax is the tax that is paid on the profits that are made when an asset is sold or given away, prime examples being businesses, shares in companies, rental properties or investments.
Earlier in the year, the level of gains made on business sales during an individuals lifetime, which would attract 10% CGT were reduced from the first £10m to the first £1m, with anything above that figure taxed at 20%.
Clearly any of the described reforms and changes to the rate of tax paid when a business is sold, will have a further detrimental effect on the business owner. The government is seemingly less and less inclined to take in to account the risks that a business owner takes when deciding to start a business.
Although the OTS has published its recommendations for the reforms to the government, it hasn’t offered any firm details in terms of timescales, and when any increases may be introduced. It is likely to be when the next formal UK Budget is announced, so we will be keeping our eyes peeled for this.
Our advice – what should you do now?
- Review your plans – bearing in mind that the tax rates in place at the moment may not be around for much longer, are there any actions you can take to crystalise gains now instead of waiting. Talk to us in this regard, we may be able to assist.
- Contact your local MP – We will be writing to our local MP about this issue. We would strongly urge you, as a business owner, to do the same. It’s likely that many MP’s don’t even realise what these reforms would mean. You can find details of how to contact your local MP here. The Capital Gains Tax reform is being billed the in the media as a niche increase, but we all know that its impact will be wide-ranging.
- Stability – After the unprecedented disruption due to the pandemic and the uncertainty of Brexit, looming in just over a month’s time, this is not the treatment that small businesses need – we all need to act together.
At Inspire we’re passionate about helping business, please do get in touch with us to see if there is anything we can do for your particular situation.