The Office of Tax Simplification (OTS) recently published "Simplifying by Design", a report containing a series of recommendations on Capital Gains Tax (CGT) reform. The report includes some significant recommendations, including increasing the existing CGT rates, and abolishing reliefs.
Although not binding on the government, with the Spring Budget just around the corner (3 March 2021), and the government's finances in poor shape, many of the recommendations may be rather appealing to the Chancellor, Rishi Sunak. Watch this space.
The recommendations are summarised as follows:
- Closer alignment of CGT rates with Income Tax rates; addressing 'boundary issues' between CGT and Income Tax;
- Reintroduce a form of relief for inflationary gains; consider the interactions with the tax position of companies; and introduce more flexible use of capital losses;
- Reduce the number of different CGT rates and the extent to which CGT liabilties depend on the level of the individual's income;
- Consider whether employees and owner-managers' rewards from personal labour are treated consistently; in particular, consider taxing more share-based rewards, and accumulated retained earnings in smaller companies, at Income Tax rates;
- Reduce the Annual Exempt Amount (AEA);
- If reducing the AEA, also reform the chattels rules; formalise the administrative arrangements for "real-time" CGT reporting; and explore whether investment managers and others should report CGT information to taxpayers and HMRC;
- Where an Inheritance Tax (IHT) relief or exemption applies, consider removing the CGT "uplift on death" and instead provide that the recipient is treated as acquiring the assets at the historic base cost of the transferor;
- Consider removing the CGT uplift on death more widely (not just where an IHT relief or exemption applies);
- If removing the CGT uplift on death, consider a rebasing of all assets, perhaps to 2000; and consider extending Gift Holdover Relief to a broader range of assets;
- Replace Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) with a relief more focused on retirement; and
- Abolish Investors' Relief.
The report focused only on individuals' liabilities and did not cover CGT for trusts; or the attribution of offshore gains to UK resident individuals.
A second report is expected later this year, focusing on technical and administrative matters.