Is the current CGT regime fair?
A major think tank thinks the current CGT regime is a tool for the wealthy to pay less tax
Landlords should brace themselves, as a major think tank has recently raised concern on the rising inequality due to unjust rates of capital gains tax (CGT) enjoyed by the wealthy class on the income they earn through sales of assets and shares against the income tax that is levied on the income earned by hard-working individuals. If you own a property and are thinking about selling it, your first point of contact should be to look for highly competitive Accountants in London.
The propositions put forward by the Institute of Public Policy research are expected to spark resentment among property investors, who are currently enjoying the perks of low tax on their income earned through the buying and selling of properties. A highly competitive property accountant should be able to help you save tax if you are selling your property.
Though there has been a significant increase in CGT over the past two years, the think tank still believes in calling out for a greater increase in the rate of CGT applied on properties and shares. The statistics published by HMRC reveal that the UK government was able to pocket a record £9.2 Billion in their national treasury from CGT rate changes during the year 2018-2019.
The Institute of Public Policy Research projects that the government can accumulate over £120bn over the period of next 5 years in revenues if it were able to tax the income earned from wealth in the exact same manner as they tax the income earned from working. Though, there is a good chance that the figure might drop to £90bn depending upon behavioural impacts.
They also highlighted that the tax rates levied on the profits made from selling a property, owning shares and rents would not be considered fair if compared to the income tax regime, and will only trigger greater inequality within the society in the long run.
Currently, property owners pay 10% (18% on sale of residential properties ) of CGT as basic rate taxpayers whilst they pay 20% (28% on sale of residential properties) as higher rate taxpayers, which in comparison, is unfair to the income tax, that charges 20% for the basic rate taxpayer and a hefty 40% for the higher rate taxpayer. If you have multiple incomes and are not sure how it impacts your tax position you should contact your tax accountant and if you do not have one try searching for a tax accountant nearby.
This implies that a landlord with capital gains of £50,000 would pay much less tax as compared to the person who has the same level of income but earned through regular employment in the UK. IPPR argues that this is not healthy for the economy in the long term and has the potential to encourage tax avoidance practices.
With annual CGT exemption for all of the taxpayers amounting up to £12000, IPPR has also proposed to cut down this exemption to only £1000, IPPR aims to push the government to drive up the CGT to 20% from 10% for basic rate income taxpayers, whilst 40% to 45% for higher rate income taxpayers.
Institute of Public Policy Research wants to equalise wealth distribution between the population and ensure that every individual residing in the UK does not escape from the tax net and pays their fair share of tax. They plan to do this by recommending to the government to shift the tax burden more towards the wealthy class- property owners, savers and investors. If you are a taxpayer and want to plan to pay only what you should be paying in taxes you should find a tax accountant.
One argument provided by the director of IPPR is that their propositions have been suggested in order to promote fairness. They believe that it is very unfair that people who gamble on stocks and shares in the stock markets or invest in property get to pay less tax as compared to the people who dedicate a lot of time and effort to fulfil the responsibilities of regular employment just to make ends meet.
The think tank believes that the proposals they suggest will introduce equality within the social and economic infrastructure but they are somewhat ignoring the fact that most of the investors and savers are already paying tax on their income from work. They carefully invest their savings into assets for future security and might be ready to pay more taxes as they earn more through their investments and property gains over time.
It’s not only the landlords that will be affected but a common taxpayer who struggles hard enough to earn and save enough for investing in a stable asset will also have to pay a higher CGT than it was ever before. Claiming legitimate tax reliefs is the right of every individual who works hard to make money, it is advisable to hire a competitive tax accountant so that you can maximise the tax reliefs you can claim.
Clear House Accountants are expert Accountants in London, our highly trained team of tax accountants have been trained to identify the key areas where they can help you and your business save tax and improve cash flows.
Thao is a Senior Accounting Manager at Clear House Accountants. Her experience in the industry has led her to her current position in which she is responsible for a team of accountants, tax planners and bookkeepers.
Thao works with her team to help clients from a variety of industries, grow, save money and plan for the future. Thao holds a Bachelor and Masters degree in Accounting and Finance and is currently working towards her ACCA, she is also a Xero and Quickbooks Certified Advisor.
Thao’s expertise lies in high-level tax planning, management accounting and strategic business planning based on financial performance and business analytics. Her experience, expertise and knowledge make her an exceptional contributor at Clear House.