Serious reform of CGT takes a step nearer…

The Chancellor Rishi Sunak has just asked the Office of Tax Simplification to “undertake a review Capital Gains Tax (CGT) and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses”.  This is to include proposals the OTS may have in relation to allowances, exemptions, reliefs and the treatment of losses, and the interactions of how gains are taxed compared “to other types of income”. How CGT rules may distort behaviour or “not meet their policy intent” is also to be looked at. 

So, not long after the OTS’s review of Inheritance Tax (and then the report on the same subject from the All Party Parliamentary Group for Inheritance and Intergenerational Fairness), we have another major tax review, and perhaps one that, if actually acted on, might impact more people than are affected by IHT.  For example, while the OTS’s statement includes a look at “the administration or technical issues” relating to the practical operation of principal private residence relief, any suggestion of a reform of that CGT relief will affect anyone owning their home; it will be a bold Chancellor who treads on that particular relief. Likewise, having only recently heavily restricted Entrepreneurs’ Relief, it can only be hoped that the review does not dis-incentivise small businesses and entrepreneurs who are, after all, a key part of the government’s job retention and creation agenda.    

However, while there is a lot to be said for some simplification of CGT (as with all UK taxes!), with the current economic climate resulting from the COVID-19 pandemic and the consequent explosion in government borrowing, one can’t help but feel that the existing low rates of CGT are likely to be raised, potentially to match those for Income Tax.  Tying in with the review of IHT, will this CGT review recommend the scrapping of the capital gains uplift on death, particularly where there is an IHT relief on a deceased’s assets? Such moves would, after all, have a headline grabbing simplicity, perhaps easily sold to the public as asking the wealthier sections of society to pay their “fair share” of the costs of the pandemic. 

With a party that in breaching the “red wall” has to some extent re-positioned itself away from its historic base of Landed Estates and City money, and with a comfortable Parliamentary majority, it may be that COVID-19 gives rise to a once in a generation reform of capital taxation.  The costs of the pandemic will, after all, have to be paid for somehow.  For those working in the industry, the deadline for providing the OTS with detailed comments is 12 October but for clients this must surely be an incentive to review and possibly bring forward their estate and succession plans.