What Capital Gains Tax changes for contractors did Autumn Statement 2022 unveil?
It’s a perennial fear for entrepreneurs when a chancellor is about to get to their feet but this time, the CGT rumour mill was churning quite specifically about increasing rates of CGT, and even ending some key exemptions, potentially on profits when people sell property.
On November 17th at his statement, there were indeed Capital Gains Tax changes by Mr Hunt -- but they were much more limited than limited companies and us advisers feared, writes Gareth Wilcox, partner at Opus Business Advisory Group.
Hunt likes to halve, and then halve again
In fact, the chancellor restricted the changes to him slashing the point at which CGT becomes payable by individuals, including any contract professionals operating as sole traders.
According to the Green Book, CGT is going be payable on annual gains above £6,000 from April 2023, and payable above £3,000 from April 2024. Both of those are far (far) lower thresholds than the more generous current threshold -- £12,300.
So, a bit like he’s done on dividends, Hunt has (effectively) halved the current threshold, and then he plans to do the same again. Hunt halving and then halving again is a trend we’ll need to be wary of, guided by the fact when he did it, his HM Treasury implied we’ve all had a good thing for far too long (“Autumn Statement reduces the generosity of the dividend allowance and the CGT annual exempt amount”).
CGT rates remain untouched
There was no change at Autumn Statement in the rate of CGT, which remains at 10% for basic rate taxpayers on any gains above the annual exemption (or 18% on profits from selling residential property which is not your home).
The rate is 20% (or 28% on gains from residential property which is not your home) for higher rate taxpayers, or if the gains push total income above the basic rate band.
Not every disposal of assets is subject to CGT.
What's exempt from Capital Gains Tax?
Indeed, there is a lengthy list of exemptions:
- The sale of your primary residence
- Gifts between married and civil partners
- The sale or gifting of cars that aren't used for business purpose
- The gifting of personal possessions to a limit of £6,000 per year
- Wasting assets with a useful lifespan of 50 years or less
- ISAs and Peps
- Gold, silver, and platinum coins
- Gifts to charities
- Betting and lottery winnings
- UK government gilts
- Proceeds of life insurance policies
- National Savings & Investments products, child trust funds, and pensions
- Employee shares held in approved share incentive schemes
- Gains on some tax-efficient investments
CGT does not apply to assets that are given to charity, nor on transfers of assets between spouses or civil partners.
Here's the biggest CGT relief of Autumn Statement 2022
This tax concession used to be known as Entrepreneurs’ Relief.
It allows individuals to pay a reduced CGT rate of 10% on gains from selling business assets, up to a lifetime limit of £1million.
Killing off contractors?
Ultimately, the only major change at Autumn Statement 2022 concerning CGT for individuals and sole trader contractors is the cutting of the annual exemption. It has been said online, in a post responding to ContractorUK’s coverage of Hunt’s announcements, that “raising CGT isn’t aimed at killing off contractors.” Perhaps not – but it seems IR35 reform, higher corporation tax, and lower tax-free dividend income, are. Those three more than meet that rather tragic objective.
While big businesses might not like that trio of Autumn Statement upshots either, it’s the smaller entrepreneurial companies who’ve had a lucky escape on CGT at Autumn Statement, given that changes to BADR would have resembled the proverbial door kicking some of them as they literally took their way out! Knowing the chancellor has a penchant for taking numbers that look ‘generous’ and then halving them, twice, we can only keep our fingers firmly crossed about the next few Budgets in relation to this 10% rate on lifetime gains of up to £1million, especially those Budget statements impacting tax years after the next general election.