Office Of Tax Simplification Will Undertake Review By October
Chancellor Rishi Sunak has asked for a review of Capital Gains Tax (CGT), potentially changing the landscape of personal tax for homeowners and investors.
Mr Sunak has asked the Office of Tax Simplification (OTS) to begin immediately on reviewing the current CGT system, which taxes the profit on assets like second homes. The OTS’ consultation will run until October, the same month the furlough scheme is set to be wound down.
The announcement comes after last week’s economic statement from the Chancellor, where he announced tax cuts costing £30bn, including temporarily suspended stamp duty on properties up to £500,000 until 31 March 2021.
Expert Opinion“This announcement from the Chancellor isn’t unexpected, but is a head scratcher given their focus on boosting transactions in the economy.
“A review of CGT is welcome overall – there are anomalies and over the years it’s gotten complicated - so simplifying would be a sensible step. However, the Government looking at CGT as a way of paying for the furlough scheme isn’t realistic as it doesn’t bring in a huge amount of revenue.
“What would make more sense, but would of course be unpopular, would be an increase in income tax which is where the money really lies. Even increasing the higher rate band from 40% to 41% would bring in a substantial amount of extra tax.” Kelly Greig - Partner
Currently, CGT is levied at 18% basic taxpayer rate or 28% higher taxpayer rate on property. On other assets such as art, jewellery or any business shares among others, the rate is 10% for basic-rate and 20% for higher-rate taxpayer. This is much lower than the rate of Income Tax, and therefore uplift may be possible to prevent planning for gains rather than income to reduce the amount of tax payable.
The OTS recently reviewed the inheritance tax system, with their recommendations published last year recommending sweeping reforms to the existing setup. The suggestions have, so far, not been implemented, though this may change as the true cost of the furlough scheme is revealed.
Kelly continued: “Any changes to main residence relief would be unlikely as it would bring the housing market to a standstill. People are already paying SDLT on their purchases, and so to have to pay CGT on the sale of their main residence isn’t going to win any votes.
“A possible option may be to look at gift relief; as an example, this would prevent individuals gifting business assets without incurring a CGT charge immediately and individuals transferring assets into trust as a way to avoid CGT. Looking at the gifting of business assets, it may be decided that you have to be working in the business to be able to claim this relief (much like Entrepreneurs Relief), which stops AIM shares from being transferred into trust.
“Another option is to stop the current position where you get an automatic uplift to market value for CGT purposes on death. This is very generous and obviously this is seen as a windfall for beneficiaries as they haven’t had to work for this money. We await to see what the outcome of the review is and if its recommendations are implemented.”