that Capital Gains Tax could rise
Reports on the BBC News website and in the Times and Daily Telegraph
cover a report for the Treasury by the Office of Tax Simplification
(OTS) that suggests the Chancellor could bring Capital Gains Tax (CGT)
in line with income tax, and reducing the threshold at which the gains
levy kicks in from £12,500 to £5,000. The Chancellor needs
to find up to £40bn a year in public spending cuts or additional
revenue raised - a daunting challenge for any chancellor.
amount of tax levied on capital gains could be raised by billions
of pounds according to a new report. About £14bn could
be raised by cutting tax exemptions and doubling rates, according
to the review which was commissioned by Chancellor Rishi Sunak.
The main losers would wealthy people who own second homes or
assets not shielded from tax. It comes as the Chancellor looks
for ways to cover the enormous costs of the coronavirus pandemic.
A concern for classic car enthusiasts is the possibility the
scope of "assets" for capital gains tax (CGT) could
be extended to include classic cars.
assets have capital gains tax exemptions or shielding?
Currently cars are considered to be depreciating assets
and classic cars are not distinguished. There seem to
be considerable problems in taxing classic cars which would
have to be separated out from other cars to avoid CGT losses
on mainstream cars arising. They could just take cars in the
Historic class, but being in the historic class is optional
now - if you do not take action to transfer into the Historic
tax class then it does not happen, so perhaps they would take
an arbitrary age, but that has its own difficulties as a value
would have to be set for the date that it becomes taxable.
The value of a car, particularly a classic car, is highly subjective
and owners could no doubt find someone prepared to value their
vehicle quite highly, to establish a high baseline for any future
sale or transfer when any capital gain might arise. Equally
someone else might give a low value if it was transferred rather
than sold. If a car is simply bought and sold when already taxable
the situation is reasonably clear, but anything else is complicated.
Then when money is spent on the car, is that expenditure for
normal maintenance or improvements adding to the capital value?
It's very likely Sir Greg Knight (chairman of the All Party
Parliamentary Historic Vehicle Group) will point out the potential
difficulties to Treasury colleagues, and is quite well connected.
There could be a bit of a payoff between CGT and VED, if say
cars became taxable assets at 25 years old, so on the basis
that they are then classics there must an argument that 25 years
is the age at which they should cease paying VED.
The most important exemption from CGT is of course is a property
which is a main residence, but imposing a tax on that would
be political suicide, although an annual wealth tax has been
suggested from time to time by various Lib Dem MPs.
It's likely some tinkering might be done to the CGT rules, rather
than the possibility of major changes involving classic cars.