Possible changes to Capital Gains Tax (CGT)

Posted by RM2 at 17:26 on 20 Jul 2020

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There has been recent speculation in the press regarding possible changes to capital gains tax rates (CGT), which are far lower when compared with income tax rates, and the possible withdrawal of entrepreneurs’ relief (ER), which taxes qualifying gains to a CGT rate of 10% for higher and additional rate taxpayers. This speculation has arisen following the Chancellor announcing a review of CGT and its reliefs, and it follows on from the reduction in the ER lifetime limit from £10m to £1m in the most recent Budget.

Whilst the Treasury has said it is standard practice to review taxes regularly, in view of the urgent need for the government to fund historic levels of public spending and criticism that ER is a poorly targeted relief benefiting our wealthiest taxpayers, commentators have discussed whether this will lead to an overhaul such that CGT rates are raised in line with income tax rates and a removal of the CGT free annual exempt amount (currently £12,300).

This will have implications for share scheme arrangements if this does prove to be the case. For example, the popular Enterprise Management Incentive (EMI) scheme secures ER and a 10% CGT rate on £1m worth of gains where the EMI option and shares have been held for at least 2 years prior to exercise and sale. Other tax advantaged schemes, such as the Company Share Option Plan (CSOP), and other share incentives deliver the growth in value to key employees at the currently lower rates of CGT.

Whilst the government did hold a similar review of inheritance taxes there were no broad sweeping changes, but we eagerly await the outcome of this announcement to determine the impact on tax efficiency for share scheme participants.

If you would like to talk to us about your share scheme arrangements drop us a line at enquiries@rm2.co.uk and arrange a call with one of our share scheme specialists.