Capital Gains Tax review could lead to significant changes
Could we be in for a significant change to Capital Gains Tax?
As the UK economy and public purse recovers from the Covid-19 pandemic, Treasury ministers are searching for financial solutions, which could include a tax hike.
Now, the Chancellor Rishi Sunak has written to the Office of Tax Simplification (OTS) asking them to review Capital Gains Tax and aspects of the taxation of chargeable gains.
The review will look at Capital Gains Tax as it relates to individuals and smaller businesses.
We understand it will look at ways to simplify the administration and impact of technical issues, but also explore areas where the present tax rules can distort behaviour or do not meet their policy intent.
This review of Capital Gains Tax is, therefore, designed to ensure the system remains fit for purpose.
To put this tax review in context, Capital Gains Tax can be complicated for taxpayers and their advisers.
In our experience, it is a less well-understood tax than, say, income tax, and some individuals fail to realise that tax is due when they dispose of certain assets.
Making Capital Gains Tax even more complex is its interplay with Inheritance Tax, with some lifetime gifts potentially liable to both forms of tax, depending on the size of the gift and for how long the donor survives.
The amount of tax raised by the Treasury through Capital Gains Tax has risen sharply in recent years and is due to continue growing.
For the 2023/24 tax year, it is forecast that the Treasury will collect four times as much Capital Gains Tax as it did in 2013/14 when receipts totalled £3.9 billion for the tax year.
As things stand, the Treasury collects more revenue from Capital Gains Tax than it does from tobacco duty.
For the current 2020/21 tax year, individuals have a Capital Gains Tax allowance of £12,300, allowing up to this amount of chargeable gains to be realised free of tax.
Also, there are some planning opportunities for married couples and civil partners, allowing the use of both sets of allowances before the disposal of potentially taxable investments.
We will keep a close eye on developments with this review.