Here, Which? explains the rumoured changes, how they could impact your personal finances, and how to protect yourself.
How does CGT work?
CGT is a tax levied on your profits when you sell an asset – such as shares or property – that's increased in value.
It was first introduced by the Labour government in 1965, following a surge in the value of property and other assets after the Second World War.
If you make a gain after selling assets or property, you'll pay 18% CGT as a basic-rate taxpayer, or 24% if you pay a higher rate of tax.
The total CGT taken last year was £12.1bn across 378,000 taxpayers, according to HMRC. The Office for Budget Responsibility (OBR) expects this to more than double to £25.5bn by 2030.
Predicted CGT raised by 2030
Find out more:What changes to CGT are being discussed?
The Treasury is purportedly considering several options.
Most discussed is the idea that anyone selling any property, including their main home, for more than £1.5m will be liable for CGT.
If this were charged at 24% for a higher-rate taxpayer, and if someone’s £1.5m home had increased in value by 15% since they bought it, they’d be liable for a £54,000 tax bill, according to Hargreaves Lansdown.
CGT is currently charged at 18% for basic rate taxpayers and 24% for higher and additional rate payers. Income tax on the other hand, is charged at 20%, 40% and 45% for basic, higher and additional rate taxpayers, respectively.
Taking our earlier scenario and applying equalised CGT rates would land a higher rate taxpayer with a £90,000 bill, and an additional rate taxpayer with a £101,250 bill.
The government could also make a change so that capital gains no longer reset on death. Currently, gains made on stocks and shares during your lifetime are not considered for CGT purposes after your death, but the Treasury could opt to change this, leading to a higher tax bill for your heirs.
Lastly, there is the option of reducing or abolishing ‘business asset disposal relief’, which applies a discounted CGT rate to business owners when they sell parts of their business.
Find out more:Why is the government targeting CGT?
Most CGT is paid by a small number of wealthy taxpayers – according to HMRC, last year 40% of CGT came from individuals and trusts who made gains of £5m or more. Any increase would largely be shouldered by the wealthiest in society.
Some experts also argue that it’s unfair to tax unearned wealth (capital gains) at a lower rate than earned income (wages). This disincentivises work and encourages the hoarding of wealth.
Equalising CGT with income tax would go some way to addressing this, with estimates suggesting it could raise up to £12bn of extra tax revenue per year.
The counter-argument is that any hike to CGT could reduce investment into the UK, as investors may become less inclined to take risks.
Find out more:6 ways to protect yourself from a CGT hike
Use Isas:Pay into your pension:Move existing investments into an Isa:Transfer assets to a spouse: Consider CGT free investments: Don’t forget to include your losses:Find out more:source https://www.which.co.uk/news/article/how-to-protect-your-passive-income-from-a-capital-gains-tax-hike-aS5ve6W37m0W