Capital Gains Tax, and How The Upcoming Autumn Budget May Affect You
Chancellor Rishi Sunak’s announcement for the Autumn Budget is expected on the 3rd of March 2021. With the backdrop of the pandemic which saw the UK government spend £280bn in economic support, and with the forecasted deficit to reach a height of £400bn, the announcement will be seen as a ‘statement of intent’ as to how the treasury will approach funding the UK’s recovery plan.
One solution rumoured is a drastic change to Capital Gains Tax (CGT).
CGT is calculated at a fixed 20% rate on share sales, with it sometimes being 10% when certain conditions are met. The Office for Tax Simplification published a report back in November recommending that the CGT system be reformed to stay in line with the rates for income tax. Thus, basic rate taxpayers would pay 20% on share sales while higher rate and additional rate taxpayers would have to pay 40% and 45%, respectively.
The recommended increases drew heavy criticism from business leaders as changes would discourage entrepreneurship, slowing down high-growth companies, and reduce investment all while cutting jobs all in the midst of a significant economic downturn.
E2E’s Founder and CEO Shalini Khemka worked with Lord Leigh of Hurley to write up an open letter to further highlight the negative effects of a raise in CGT:
“We recognise that any income we draw from our business should be taxed with income tax but we believe that the risk we took in starting and investing in a UK business, providing jobs and prosperity for others, should be recognised by an appropriate different rate of capital gains tax designed to encourage others to do the same. This will also encourage us to consider launching subsequent businesses, in due course.”
While the UK is currently recognised as one of the top start-up eco-systems, this may not hold true if doing business becomes more difficult due to an increase in CGT.
If you would like to read more, please click here to read Finerva’s article detailing the anticipated budget and Capital Gains Tax.