Do I think that the Chancellor will increase CGT rates from 3 March? Before Christmas, I would have said that it was a significant possibility but with lockdown 3 this now seems much less likely. This is not to say that it won’t happen – as my article outlines there is an argument for pre-announcing a rise to CGT rates to generate short term demand and bring forward tax payments. There is also an argument to align CGT rates with income tax and tightly focus reliefs where they can have the biggest impact. As IHT and CGT are so closely linked, in my view it is important that any changes to either tax are considered alongside the other, otherwise it can really alter behaviour.
The global comparison is also key but can be tricky - headline rates of tax are easily comparable, although that sometimes hides a more complex picture involving allowances and reliefs. For example, the UK’s headline IHT rate is 40% which is at the upper end globally with only Japan, South Korea and France being higher, but these countries do reduce the rate for assets passed to spouses and children so the headline rates alone are not a good global comparison. The same applies for CGT – the UK’s main rate is 20% which appears fairly low globally but we do charge 28% on residential property and carried interest which is more in line with other countries that charge CGT.
The Resolution Foundation published a report in May 2020 on the wealth gap between the rich and the poor in the UK and said that some of the disparity is due to the wealthy realising a higher proportion of capital gain compared to income which is not accurately recorded in the UK’s income statistics. You could argue that increasing CGT rates in line with income tax would deal with this disparity and indeed this was one of the key recommendation of the Office of Tax Simplification but, as they also set out, the answer is more nuanced than this. I doubt that CGT rates will increase as high as 45% at least not on all assets but it could rise to 30% which would still be a globally competitive rate.