Changes may be afoot in Britain but will this bring us closer or further away from other countries?

Welcome to the latest in our continuing series on Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR).

We’ve already looked at the history of CGT to see how and why it has developed how it has as well as what the future of CGT could look like as well as the immediate threat it could face in the near future.

In our last blog we investigated the reasons why the number of CGT payers had quadrupled in the past 30 years.

Today we investigate how the UK compares to other countries with Capital Gains Tax regimes.

Chancellor Rachel Reeves has given no indication as to what any future rise to CGT could be, if any, but it hasn’t been named by her or the Prime Minister as being off-limits and several analysts agree that raising levels closer to income tax rates could generate badly needed billions in additional revenue. 

Some countries such as Denmark, Luxembourg, Hungary and Australia have CGT set at the same level as income tax although some countries don’t levy CGT at all. 

It’s a complex tax and can be hard to compare directly as specific reliefs and exemptions for different types of assets, holding time and transactions vary. 

Australia has the highest CGT rate in the world at 45% which is level with their highest rate of income tax but they allow for a 50% deduction on any gain for assets held over 12 months. 

Nordic countries typically also have high CGT rates with Denmark charging 42%; Norway charging 37.84% with Sweden and Finland settling on 30%. 

Conversely several countries do not levy CGT at all including the Bahamas, Belgium, Bermuda, Gibraltar, the Isle of Man, Jersey, Guernsey, New Zealand, Qatar, Saudi Arabia, Singapore and the United Arab Emirates.

In Switzerland private assets sales are generally free of CGT too but its cantons (areas) impose wealth taxes and charges on gifts and inheritance. 

The UK’s range of CGT from 10% to 28% is generally accepted to be mid-range with the average rate for G7 countries being 27.32% and 19.7% for OECD countries. The top rate of income tax on dividends is 39.35% while the top CGT rate on share sales is only 20%. 

Analysts acknowledge that this gap is large enough to encourage avoidance and that a rise in CGT would help offset this but views differ on what level the Uk should adopt to remain competitive. 

Pascal Saint Amans, former head of tax at the OECD thinks that countries‘ tax dividends should aim to levy “consistent” rates of CGT – primarily to prevent people structuring income as gains to avoid tax. 

He acknowledges that in practice this is harder to achieve. As an example if the UK raised its CGT rate to the same level as its top dividend rate then it would jump to being the highest CGT rate in the G7. 

Similarly, If it was raised to equal the highest income tax rate in the October 30th Budget which would be 45% then this would make it the equal highest in the world alongside Denmark, Chile, Turkey and Uganda.

The consensus amongst Treasury watchers and analysts is that a new CGT rate of about 30% would be the sweet spot that Rachel Reeves should aim for. 

This is similar to France (30%, rising to 34% for high earners); Ireland (33%) and Germany (25% plus a 5.5% solidarity surcharge on tax paid).

According to HMRC’s own research published in June, this might give us a clue at where any final increase could be set. They projected that a 10% rise in CGT rates would result in a £2 billion loss to the Treasury in the 2027/28 tax year.  

So while some increase is widely expected, we won’t have an indication of the final number until Budget day itself in six weeks time.

While we agree that nobody will know, for sure, what is happening to CGT and potentially BADR until the Budget is announced, you don’t have to be a weather expert to see pressure dropping, clouds darkening and birds taking wing to understand that a change in weather is coming. 

And if the ultimate outcome isn’t as extreme as some of the scaremongering forecasts, these benefits to directors are almost certainly going to change and be less effective.

This is why anybody thinking of closing their company to fully take advantage of the current situation would act now while they still can.

We offer a free initial consultation to any business owner or director who would like to hear about all their options including how a Members Voluntary Liquidation (MVL) could be the ideal solution. 

So get in touch today to arrange yours while you still have time to act on it.