Over the past year the Office of Tax Simplification (OTS) has published two reports into capital gains tax, recommending that the government should reform it. The first report published in November 2020 put forward eleven recommendations, including aligning CGT and income tax rates; and cutting reliefs and allowances. The second report, which came out in May 2021, focused on more narrow, technical areas.
But a letter sent by HM Treasury to the OTS last week appears to confirm that the major recommendations are not going to be implemented, at least for the time being.
Under the current rules, the first £12,300 of chargeable gains each tax year are exempt from CGT and the rates of CGT are 10% for basic rate taxpayers and 20% for higher rate taxpayers, although gains on the disposal of residential property are subject to higher rates of 18% and 28%. By contrast, the top rate of income tax is 45% (or 46% for Scottish taxpayers). With the Treasury needing to raise cash, it is no surprise that there is pressure from some quarters to 'align' income tax and CGT by increasing the CGT rates.
Lucy Frazer, financial secretary to the Treasury commented "these reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC. The Government will continue to keep the tax system under constant review to ensure it is simple and efficient."
In the same letter, the Treasury also confirms that, having considered recommendations made by the OTS in relation to inheritance tax, no changes will be made to IHT for the time being.
Some recommendations from the second CGT report were accepted, including an agreement to extend the time during which divorcing and separating couples can transfer assets between them without triggering a CGT charge. The detail of that is, however, subject to further consultation.