What is it actually for? A de minimis designed to reduce the number of tax payers, a relief akin to the personal allowance for income or a simple way to allow for a bit of inflation proofing?
At £12,300 for 2020/21, many consider the AEA to be too high so operating more like a tax relief than an administrative de minimis.
The report notes that in 2017/18 approximately 50,000 reported net gains just below the threshold. Clearly showing that it does impact investors decision making. Or good tax planning if you’re a planner!
It’s estimated that in 2021/22 CGT taxpayers would double if AEA was reduced to £5,000 and tripling if £1,000.
There were two recommendations here. Primarily, reducing the level of the AEA.
Reducing though causes greater admin and brings more people into the tax system. If the government were to consider reducing the AEA there are further recommendations to deal with the increased amount of taxpayers. These are:
- amending the chattels regime to reduce the amount of asset types that are subject to CGT,
- ensuring the CGT regime operated “real time” with gains fed into personal tax accounts, and
- asking investment managers to calculate and report gains to Individuals and HMRC, to make tax reporting easier.
Asking managers to report gains, akin to the insurance bond chargeable event regime, would no doubt be welcome for clients and planners alike but perhaps not so much for the investment managers!
If the AEA is reduced it will be interesting to see if it just means people will reduce their withdrawals to remain within the allowance. On another point, if the AEA remains as is and the recommendation to align tax rates is implemented, this would be largely of no consequence for those just buying and selling investments within the AEA i.e. a lot of people. Those selling businesses might not be so happy and holding properties as an investment less attractive. Another tax nail in the “property is a better bet for retirement/buy to let” coffin?