More on the Capital Gains Tax Review

I commented briefly yesterday on the Review of Capital Gains Tax by the Office of Tax Simplification (OTS)  – see where I called it a “missed opportunity” to substantially reform the tax.

The more one looks at their proposals the more some of them appear to become absolutely bizarre. For example I mentioned the proposal 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.

This has two implications. Firstly it means that the full value of the same asset is taxed twice – once in IHT when it is inherited, and again when the inheritor subsequently disposes of it in capital gains tax. At least at present, the inheritor only pays tax on the growth in value during their ownership. But if the latter tax is based on the original value rather than the last inheritance, it could go back very many years in time. This is what Tim Stovold of Moore Kingston Smith said in the FT on this issue: “If this change should become law, capital gains could accrue across multiple generations making assets unsaleable due to the astronomical tax liability — a liability that could come home to roost if they were ever sold”.

The second issue with this is that in practical terms it means that an inheritor would need to know not just the value of the asset as fixed by probate, but the value when originally acquired by the deceased. This could be an impossible task because past records are rarely kept with such accuracy and longevity.

The FT published a good article under the headline “What does CGT review mean for investors” where it pointed out other problems with the review’s proposals and quoted a number of people giving negative comments.

One can only conclude that if the Government pushes ahead with these proposals, that one should rearrange one’s financial affairs to hide as much as possible in ISAs and SIPPs, or buy big houses to live in (not subject to CGT) and not invest in company shares or your own businesses. Or alternatively avoid accumulating assets and spend the cash before you die. This surely makes no sense in policy terms!

Roger Lawson (Twitter:  )

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