Revenue from capital gains tax reached a new high in the 2019-2020 tax year, bringing in £9.5billion for the Government, according to new HMRC data. These figures came despite the fact that the number of people paying the levy has continued to decline. Last year 265,000 taxpayers paid capital gains tax, down from 276,000 in 2018-19 and 281,000 in 2017-18. The latest figures show that nearly 41 percent of capital gains tax is paid by around 2,000 taxpayers who made £5million or more in taxable gains.
However, with the allowance set to remain at £12,300 until 2026, it’s expected that more and more people will find themselves with a tax bill in the coming years.
But reports of another plan being considered by Chancellor of the Exchequer Sunak is causing concerns over significantly higher bills.
Analyst at AJ Bell, Tom Selby, tells Express.co.uk that it is “very possible” capital gains tax will be aligned with income tax.
He added: “The Office for Tax Simplification’s proposals edged towards aligning the two taxes.
“The impact of that would be someone disposing of an asset would pay significantly more tax than they do at the moment.
“There would be a big impact on landlords for example, people who have second properties.
“At the moment capital gains tax is charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer.
“If this was aligned with income tax, you would be looking at a tax rate of 20 percent, 40 percent or even 45 percent.
“So if you went down that route, anyone with significant assets or multiple properties could see a big impact on the value of their property.”
Mr Selby adds that this measure would likely spook people into moving cash into ISAs and pensions to try and avoid hefty bills.
He continued: “You’d also see a flow of assets into tax efficient savings products such as ISAs and pensions.
“Naturally if you raise capital gains tax people are going to want to move their money where they won’t be charged.”
Shaun Moore, tax and financial planning expert at Quilter, is another expert warning the Chancellor could hike capital gains tax in his autumn statement or Budget next spring.
He reportedly said: “Aligning to income tax rates will mean everyone who has to pay [capital gains tax’ is likely to face at least a 100 percent increase in the rate payable.”
Another wealth tax that could be in Mr Sunak’s crosshair is inheritance tax.
The current inheritance tax rate is 40 percent, but it is only charged on the part of your estate that’s above the threshold of £325,000.
Like capital gains, inheritance tax also raised more money for the Government in 2020-2021 when compared with 2019-2020.
An extra £190million was raked in, representing a four percent rise from the previous year, taking the total paid in inheritance bills to £5.4billion.
It is a tax that divides opinion, but Mr Selby tells Express.co.uk that wealth taxes are a fair route to creating a more equal economy.
He added: “I think wealth taxes are probably the fairest way – ensuring those with the broadest shoulders are targeted to take on the costs of paying for COVID-19.
“It would be fair, whether it is something they believe they can do politically is another thing. There will be challenges around people avoiding bills.”