National Insurance hike is only the start! Capital gains tax and inheritance tax are next

National Insurance: Johnson has 'broken pledge' says Fysh

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Prime Minister Boris Johnson and Chancellor Rishi Sunak could introduce thumping increases to capital gains tax (CGT) and inheritance tax (IHT), as they hunt for ways to fund social care, the NHS and Covid bailouts. Tax charges could double in some cases and families could be forced to sell homes as a result.

Worried taxpayers are already taking evasive action in an attempt to head off any capital gains tax and inheritance tax increase, tax advisers report.

HM Revenue & Customs already generates a record £9.8 billion a year from capital gains tax in the 2019/20 tax year, the latest figures available. That is up fourfold from just £2.5 billion a decade earlier.

This will rise even higher after Sunak froze the annual CGT allowance at £12,300 until 2026 in his March Budget, dragging more people into the net.

Alan Harvey, financial planner at wealth manager Brewin Dolphin, said a major CGT increase seems likely and his clients are preparing for it. “Some are keen to pay CGT bills now rather than later, when rates are likely to be higher.”

Shaun Moore, tax and financial planning expert at Quilter, also fears an upcoming capital gains tax hike, possibly as soon as this autumn.

“CGT receipts dwarf those from inheritance tax and as such the Treasury will consider this a more attractive tax to raise.”

Moore predicted a string of “record years” for CGT charges, following Sunak’s move to freeze annual allowances.

“There is no guarantee the capital gains tax rate will stay at its current level as the Government scrambles to find revenues where it can.”

You risk a CGT bill when you sell assets at a profit, including shares and other investments held outside of a tax-free Isa, as well as paintings, antiques and jewellery, and property other than your main home.

Currently, basic rate taxpayers pay capital gains tax at 10 percent, rising to 20 percent for higher-rate taxpayers. These rise to 10 percent and 28 percent respectively when selling an investment property or second home.

Many suspect Sunak will synchronise CGT rates with income tax and Moore said: “This will mean everyone is likely to face at least a 100 percent increase in the rate payable.”

Rising property prices are already dragging more people into the inheritance tax net and more will get caught if IHT is increased, warned Ian Dyall, head of estate planning at Tilney.

The nil-rate threshold has been frozen at £325,000 since 2009, and that will continue until at least April 2026.

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HMRC pocketed a thumping £5.4 billion from IHT in the 2020 to 2021 tax year, and will be looking for ways to raise even more.

Dyall said the tax is a big earner for a cash-strapped Treasury looking for ways to repair its finances following the pandemic. “An IHT hike is possible, so start planning to reduce any potential bill today.”

Julia Rosenbloom, tax partner at Smith & Williamson, said more estates already face an IHT shock due to soaring property and share prices.

They could soon face even higher bills. “Personal taxes, including IHT and CGT, could be in for a massive overhaul given the amount they raise for the Treasury.”

Some may need to go as far as selling family homes to pay their IHT bills, Rosenbloom warned, and should take action as soon as possible. “Make the most of your current allowances before any new reforms are introduced, to pass more assets on to your loved ones.”

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