How likely will Capital Gains Tax double in the new budget? Will it kill investing?

pp556677

I have bee reading articles about the OTS report that recommended aligning income tax and CGT.

Surely this would make investing outside of ISA / SIPP extremely unattractive.

What are your thoughts?

pip895

You have to make a profit to pay CGT and the allowance is pretty generous..
Likely to make investing in property less attractive though  - as you cant typically sell it off in small chunks.

Keep_pedalling

Over the last few years we have been managing to syphon off all the gains in our GIA accounts using our annual allowances without paying a penny of CGT, so for most people it won’t make a lot of difference unless the allowances go as well. 

Old_Lifer

I am awaiting the  Budget on 3rd March with CGT very much in mind  as I am sitting on sizeable unwrapped gains myself. 

I can remember then CGT was first introduced.  Even standard rate  taxpayers were charged  41.25% tax on all gains made within 12 months .  Nowadays we have a very generous CGT regime with low rates of tax and a CGT allowance.

Whatever changes are introduced,  investors will adapt and cope.

poppy10_2

WIth a £20k annual ISA allowance, plus a generous CGT allowance on any investments made outside of that or a SIPP, the vast majority of people will not be affected by any rise in the rate of CGT

BananaRepublic

poppy10_2 said:

WIth a £20k annual ISA allowance, plus a generous CGT allowance on any investments made outside of that or a SIPP, the vast majority of people will not be affected by any rise in the rate of CGT

They need to preserve the incentives for ordinary people to build up retirement income using wrappers in order to reduce the number of retired people dependent on the state. They also need to prevent the rich from using these tax wrappers to avoid paying large amounts of tax, which they are doing by limiting the tax free pension pot size. And lastly they have to make sure that the changes they make don't disincentivise people from creating their own businesses or investing in other people's businesses. A lot of IT contractors benefit from the low rate of CGT when paying themselves dividends in place of a salary. I suppose they could leave CGT as is, but increase the tax on dividends. That would have an impact on those who invest in company shares, which might reduce the incentive to invest, and might hit the stock market.

There is talk of a windfall tax on the companies that did well from the pandemic, specifically Amazon, eBay and supermarkets, though some worry that the US will see that as an attack on US companies.

There is also talk of a one off wealth tax, 1% say. I don't know if that could include savings in tax efficient wrappers such as ISA's and SIPP's.

I wouldn't be surprised if they limit higher rate tax benefits of pension savings, that helps the wealthier among us who are unlikely to be dependent on the state.

Thrugelmir

opp556677 said:

Surely this would make investing outside of ISA / SIPP extremely unattractive.

Why you be investing outside these wrappers unless you are have hit the contribution annual limits?  Which is more than adequate for the majority of people. 

steampowered

The ISA limit of £20k per year per person is extremely generous, certainly much more generous than what is available in most other countries.

Furthermore, there is a generous capital gains tax allowance.

So increasing the rate of capital gains tax would not affect investing the vast majority of people.

Even if it did affect you, you realise that top rate tax payers people are paying an effective 50% tax rate on their entire income, when income tax and NI are taken into account - some are even paying 60% on incomes between £100k and £125k? Yet, you still have people going to highly paid jobs and earning income. So why would higher capitals tax stop people making money from investments? 

Aretnap

CGT for higher rate taxpayers was 40% until 2008, and 28% from 2010 until 2016. Most of those periods also had significantly lower ISA (or equivalent) allowances, so more people were affected by CGT than today. Believe it or not, people still invested in those days. They'll continue to invest in future if CGT goes up a bit from its historically low levels. 

Aretnap

Thrugelmir said:

opp556677 said:

Surely this would make investing outside of ISA / SIPP extremely unattractive.

Why you be investing outside these wrappers unless you are have hit the contribution annual limits?  Which is more than adequate for the majority of people. 

Indeed, and if people have so much surplus income that the annual ISA and pension limits are insufficient then of course they are going to keep investing, more or less regardless of the tax situation. What else are they going to do with the money? 

MaxiRobriguez

I welcome increases to CGTs, dividend taxes and carefully crafted taxes on unearned wealth.

This country is an absolute shower when it comes to fairly distributing wealth. Too many people are sitting on 7 or 8 figure wealth that they've inherited or been in the right place at the right time in regards to house price inflation for example. Too many people who put 50 hour weeks in are struggling to get by despite being sensible when it comes to budgeting and spending.

The tax system needs to adapt to reflect that asset pricing is determining cost/quality of living more than income from employment.

If the well off don't like giving a bit more from the wealth they're fortunate to have, then tough.

Disclaimer: I expect to be part of the 7 figure brigade in my lifetime, so such changes would impact me.