Chancellor Sunak has requested a review of Capital Gains Tax rules by the Office for Tax Simplification (OTS), which has sparked speculation that there could be a rate increase on the horizon, to help pay for the billions spent to help support the economy during the coronavirus pandemic.

Yesterday the OTS published an online survey and a call for evidence seeking views about Capital Gains Tax (CGT) following an instruction from the Chancellor to review this tax.

What’s under review?

The Chancellor’s letter asks the OTS to identify and offer advice on the opportunities to simplify this tax. Specifically, it asks to identify opportunities relating to the administrative and technical issues around the tax, particularly where the present rules can distort behaviour or do not meet the policy intent.

The Chancellor then goes on to name areas he is interested in the OTS reviewing to include:

• Allowances
• Exemptions
• Reliefs
• The treatment of losses within CGT, and
• The interactions of how gains are taxed compared to other types of income

The consultation

The online survey was launched yesterday by the OTS and will remain open until the end of the summer for all to participate in.

There is also a call for evidence, this falls into two parts, the first seeks high-level comments on the principles of CGT by 10 August 2020. The second section requests more detailed comments on the technical detail and practical operation of CGT by 12 October.

We are told the early deadline on high level comments (10 August) will let the OTS shape the balance of their work and may allow them to provide an interim update. This in itself is interesting and there is a likelihood that we could see changes being announced as soon as the Chancellor’s Autumn Budget.

Capital Gains Tax – a snapshot overview

• CGT brings in just under £9bn a year
• The Office for Budget Responsibility advise that there is a £60bn gap which needs plugged by taxes or a return to austerity in order to restore the UK’s public finances to stability
• Increasing CGT to an average of 30% on gains arising from transactions (currently it’s an average of 15%), would see an estimated extra £9bn
• Currently CGT rates are historically low, being either 10%, 20% or 28% for residential property
• 2015/16 tax year is when we last had a rate of 28% for all gains, other than those qualifying for Entrepreneurs’ Relief
• Prior to that it was 2007/08 when it was last linked to income tax rates

What’s in store?

It is very likely this review will result in an overhaul of the CGT regime as a means of generating further tax at this time. Currently there are generous CGT reliefs in place to pass on assets in lifetime as well as the generous uplift to market value on death - the clock could well be ticking on these areas.

The detailed scope mentions reviewing treatment of the unincorporated business versus trading companies versus investment companies – to include set up, sale and wind up of such businesses. Could we see changes to reliefs such as incorporation relief, or the ability to secure as low as a 10%/20% rate on a wind up of a company? Might family investment companies come under attack with more punitive CGT rates being payable on capital extraction?

How Capital Gains Tax interacts alongside other taxes to is be reviewed too, including Income Tax, Capital allowances, Stamp taxes and Inheritance Tax.

Principal Private Residence Relief

Principal Private Residence (PPR) relief is also mentioned as being under review. This relief costs over £27 billion (2018/19). With much of the country’s wealth tied up in our personal properties, revising this relief or abolishing it would create significant tax inflows. The relief has already been tinkered with numerous times of late, lettings relief is rarely now available, also only the last nine months now qualify for PPR (originally it was 3 years).

Property taxes

Whilst we are currently being incentivised to buy properties through the reduction in Stamp Duty Land Tax (SDLT) and Land and Buildings Transaction Tax (LBTT) rates, might we see a tax starting to apply on sales? Many may say it makes sense for the tax to be aligned with the proceeds as opposed to paying a tax on acquisition.

Next steps and considerations

If you are considering your asset base at this time with a view to either selling, passing assets on or securing losses, then there is no better time to review your affairs. Change is likely to come as a result of this review to CGT and right now rates are historically low. Going forward this may no longer be the case. If you’d like to discuss your situation, please get in touch with me Alex Docherty at Alex.Docherty@jcca.co.uk or another member of our Private Client team now.