Experts warn of an increase to capital gains tax rates

Experts warn of an increase to capital gains tax rates

tax papers
CAPITAL GAINS TAX is likely to experience a huge tax revamp in an effort to plug the
gap following the expense of the coronavirus pandemic. Those impacted by an
increase in rates and reduction in allowance are already looking at what measures
they can implement to protect their wealth from proposed changes.

What is Capital Gains Tax?

If you want to enjoy tax savings, it’s important to understand Capital Gains Tax (CGT). This is a levy paid on money earned by selling any property other than your home, and also applies to some other investments.

The allowance for 2020-2021 is £12,300, after which you will be charged in line with your tax code.

The rates are as follows:

  1. 10% for basic rate (20%) taxpayers and 18% for residential properties other than your main property
  2. 20% for higher rate (40-45%) taxpayers and 28% for residential properties other than your main property

To ensure you pay less tax on CGT, look at some of the other topics covered in this article, like ISAs, pensions, and government-backed rollouts like the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) which are also ideal for film investors and film financiers.

What did the OTS report reveal?

The OTS is the independent adviser to government on simplifying the UK tax system. The OTS makes recommendations for the government to consider. It does not implement change.

The report sets out a framework to simplify Capital gains tax and align them more closely with income tax, meaning rates should align more closely with income tax bands, as well as cutting annual tax-free allowances. 

The OTS suggested that the current gap between CGT and income tax rates was one of the main sources of complexity, which in turn distorted “business and family decision-making” and created a tax incentive for some to “arrange their affairs in ways that effectively re-characterise income as capital gains.”

Specifically, the OTS reported that the “relatively high level” of the annual exempt amount, of £12,300, “distorted” investment decisions. The current allowance has the effect of taking many individuals with relatively modest gains out of the need to report or pay tax on them.

The report shows that in 2017/18 around 50,000 people reported net gains just below the allowance limit, and its guidance to the government was that this limit should be reduced.

A tax squeeze on wealth and middle-class savers

Experts have warned middle-class savers, investors and entrepreneurs to be on ‘high alert for a tax raid’ on their finances. 

They also express concern that proposed changed to CGT would be damaging to the City, as there may be reluctance by some to buy and sell shares in listed companies.

Along with the impact on wealth, tax rises, changed could negatively affect those who inherit property, second-home owners, buy-to-let landlords and entrepreneurs who sell their businesses.

How to protect against a tax increase

It’s important to note that at this stage that these are recommendations, but it seems likely that change is on the horizon and the phrase “Use your allowances or lose them.” is more appropriate than ever.

If you are an investor, and want to make tax savings, the Seed Enterprise Scheme (SEIS) and Enterprise Investment Schemes (EIS) deserve a closer look. Both are government-backed initiatives designed to encourage private investors to help new ‘higher risk’ companies by giving them tax breaks.

SEIS

The focus of this scheme is on businesses in their early stage of development (typically these companies will have been trading less than seven years). You can invest as much as £100,000 each year and will benefit from a tax break of 50%. You will also enjoy exemption from Capital Gains Tax for any profits your shares make, provided you sell them after three years and no earlier.

Enterprise investment Scheme (EIS)

The EIS scheme is a more popular and well known option for and investors keen to make tax savings. The emphasis, in this case, is on medium-sized businesses (also known as SMEs). Here, you can invest up to £1 million each tax year and enjoy a 30% tax break in return. In line with the SEIS scheme, no Capital Gains Tax is payable on any shares sold after three years.

Capital Gains Tax free saving with Films4U

As touched upon in earlier articles, the film industry is thriving at the moment, despite the uncertain economic landscape created by COVID-19 and Brexit. Films4U work with some of the biggest names in the industry and have a strong track record of success of producing successful films that have been sold internationally across all viewing platforms. Have a look at some of the returns investors have enjoyed with Film4U so far..

With over 100 years of combined experience, we are able to guarantee film distribution and help you enjoy tax savings via the government backed incentives mentioned earlier in this article. Contact us to learn more or use our online form to apply.

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