The Office of Tax Simplification has revealed a new report on the policy design and core principles of CGT. The OTS has suggested some reforms for simplifying the design of Capital Gains Tax (CGT).
In July 2020, the Chancellor asked the OTS to carry out a review of Capital Gains Tax to identify:
- the opportunities relating to administrative and technical issues
- areas where the present rules can distort behaviour or do not meet their policy intent
Rishi Sunak in particular asked to review the role of CGT:
- in the acquisition and disposal of property
- in practical operation of principal private residence relief
The report revealed a range of areas in which Capital Gains Tax (CGT) is counter-intuitive and creates odd incentives.
Blick Rothenberg described the review as an “inevitable tax raid” to recoup some of the money spent during the Covid-19 lockdown period, describing the potential changes as “bad news for investors”.
There was a drop in CGT in the 2016 Budget, apart from on property. At that time the 18% rate dropped to 10% and the 28% rate dropped to 20%.
Hence, the first report found “many features of Capital Gains Tax which can distort behaviour, including its boundary with Income Tax and interconnections with Inheritance Tax”.
The report said that “more closely aligning Capital Gains Tax rates with Income Tax rates has the potential to raise a substantial amount of tax for the Exchequer”.
A second report, which will follow early next year, will explore key technical and administrative issues.
The OTS is the independent adviser to the government on simplifying the UK tax system. The OTS makes recommendations for the government to consider. It does not implement changes – these are a matter for government and for Parliament.