How much is Capital Gains Tax? UK Autumn Budget 2021 rise, CGT rates on property and 2022 allowance explained

The Autumn Budget 2021 has drawn much attention in recent days, with many proposals supposedly being leaked prior to Rishi Sunak’s speech.

An increase to the National Living Wage, the end to the public pay freeze and a possible tax relief on pension contributions have all been mooted ahead of Wednesday.

This prompted House of Commons speaker Sir Lindsay Hoyle to address the leaks to the press made by Conservative MPs, and suggested ministers should resign over announcements.

It, however, does little to divert the gaze away from what will be one of Mr Sunak’s most testing addresses to MPs yet, with the government keen to balance public finances after Covid support.

Could a rise in Capital Gains Tax offer a solution to Mr Sunak and the government? Let’s find out.

What is Capital Gains Tax?

Capital Gains Tax is a tax on profits when you sell something that’s increased in value since it was purchased.

Sellers are only taxed on the gain made and not the whole amount of money received from the buyer.

CGT applies when you gain on selling:

• personal possessions worth £6,000 or more, apart from your car
• property that is not your main home
• your main home if you’ve let it out or used it for business purposes
• shares that are not in an ISA or PEP
• business assets

How much is Capital Gains Tax?

Capital Gains Tax only applies on gains above an annual tax free allowance, currently set at £12,300 and $6,150 for trusts.

The current CGT rate for chargeable assets, other than residential property, is set at 20% on the gains made for those on a higher rate Income Tax.

If you pay a basic rate of Income Tax then the amount you pay could be less.

First, you must work out your taxable income minus personal allowance and other reliefs, work out your total taxable gains and deduct your tax free allowance from those gains.

Once you’ve done this, you add this amount to your taxable income. If this total is within the basic tax band, currently £37,500, then you pay 10% CGT on assets that are not a residential property.

There are a wide range of reliefs that you can claim which will reduce the amount of tax paid and you do not have to pay tax on gifts to your spouse, civil partner or a charity.

Capital Gains Tax rates on property

People selling property will pay a higher rate of Capital Gains Tax than if they would selling other items. The current rules state higher rate taxpayers pay a CGT of 28% on profits and basic rate taxpayers pay a CGT of 18% on profits for property sales.

Is Capital Gains Tax set to change after Autumn Budget 2021?

Rishi Sunak has been encouraged to increase the percentage paid on Capital Gains Tax or tighten the rules around it in the Autumn Budget 2021.

It comes as the amount received through CGT has been in decline over the past 10 years as people become more aware of the relief options available.

Research from the UHY Hacker Young states the capital gains made in the last 12 months was an effective rate of 14.9%, down from 16.5% in 2010.

Of the £62.7 billion gains recorded in 2019/20, just £9.3 billion of CGT was paid.

The Office of Tax Simplification recommended that CGT rates be raised to bring them in line with income tax, from a report published in November 2020.

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