Capital Gains Tax Review – A Missed Opportunity

The Government Office of Tax Simplification (OTS) has published a first report on its review of Capital Gains Tax. I did actually submit a personal response to their consultation on this subject back in August – see https://www.roliscon.com/Capital-Gains-Tax-Review.pdf. This is one thing I said in that: “It is of course a horribly complex tax with several different rates and numerous exemptions”.

The OTS suggests that Capital Gains Tax rates be more closely aligned with Income Tax rates but it also suggests that if that is done a form of relief for inflationary gains be done. I tend to agree with that proposal as it is certainly an anomaly that income is taxed differently to capital gains (it’s easy to change income into capital gains or vice versa). The lack of indexation relief is also a sore point to anyone who holds shares for long time periods.

There is apparently a particular concern about the owners of small businesses retaining cash in their companies rather than paying it out in taxable dividends. They can then realise it as a capital gain later at a lower rate of tax.

They also recommend reducing the annual exempt amount (currently £12,300) to between £2,000 to £4,000. There is clearly a lot of “tax management” taking place at present where people use up the allowance by deferring or bringing forward disposals. Reducing the allowance to a level where it just reduces some administrative effort (excluding those taxpayers with minimal liabilities) makes sense.

The OTS is also suggesting that the rebasing of an asset to the current value when it is inherited should be removed – in effect the new owner would have the original cost retained.

They also propose changes to Business Asset Disposal Relief and Investors’ Relief including scrapping the latter as it seems to be little used.

All of the above changes would generate very substantial additional revenue for the Government, but only if people did not change their behaviour as they always do of course in response to any demand for more tax. Harmonisation of tax rates makes sense but only if the overall tax taken is unchanged.

It is also unfortunate that the OTS review has ignored suggestions for more substantial changes such as permitting gains to be “rolled-over” as I suggested or the proposals submitted by ShareSoc. They just seem to be tinkering with the details rather than making proposals for substantial reforms to simplify the tax.

But it’s worth pointing out that the Government might ignore their recommendations as tax rates and tax structures are political decisions in essence.

The full OTS report is present here: https://www.gov.uk/government/publications/ots-capital-gains-tax-review-simplifying-by-design

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

One thought on “Capital Gains Tax Review – A Missed Opportunity”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s