Given the current situation we find ourselves in, with the huge hike in public borrowing to fund the various Coronavirus support measures, it is just a matter of time before we start to see how the tax payer will be asked to fund these measures. To many people Capital Gains Tax (“CGT”) is seen as an easy target – typically less than 300,000 people a year pay any CGT at all.
There are currently four rates of CGT – ranging from 10% to 28% - this compares favourably with income tax rates, which vary from 20% to 45%. An easy way to increase the tax yield from CGT would be to increase the rates to something nearer to income tax rates.
However last week the Chancellor, Rishi Sunak, ahead of his Autumn Budget Statement, asked the Office of Tax Simplification (“OTS”) to undertake a fundamental review of Capital Gains Tax, particularly in relation to individuals and smaller businesses (a copy of the Chancellors letter of instruction to the OTS can be found here). This review will no doubt extend far beyond just the rates of tax that are applied – it will look at the various and complex rules surrounding this tax, as well as the numerous reliefs, exemptions and allowances that are available in certain circumstances.
What are we to make of this announcement? Whilst some attempt to simplify a complex area of tax is to be welcomed, there is no doubt that this has potential to be a fundamental overhaul of a complete area of tax, which could be hugely significant for both individuals and small businesses.
Thomas Westcott will provide more guidance as and when the results of the review are published.
By Partner, Chris Hill