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Summary of Capital Gains Tax Review

01 December 2020

The Office of Tax Simplification (OTS) has recently published its report reviewing the UK’s Capital Gains Tax (CGT) regime, written in response to the Chancellor’s request in July 2020 in an effort to reduce the significant public spending deficit resulting from emergency COVID-19 spending.

Eleven recommendations have arisen from the report which we have briefly detailed below.

With the Conservative manifesto promise (to the extent it still applies) not to raise income tax, National Insurance or VAT, there are few options left for the Chancellor to consider to offset a proportion of the Government’s emergency COVID-19 spending. Furthermore, CGT is a tax that effects less that 1% of the electorate and therefore it would be politically less impactful for the Government to implement further changes to this taxation category.

Recommended considerations arising from the review:

  • Either more closely align CGT rates with Income Tax rates, or address boundary issues as between CGT and Income Tax.
  • Reintroduce a form of relief for inflationary gains, consider the interactions with the tax position of companies, and consider allowing a more flexible use of capital losses.
  • Reduce the number of CGT rates and the extent to which liabilities depend on the level of a taxpayer’s income.
  • Consider whether employees and owner-managers’ rewards from personal labour (as distinct from capital investment) are treated consistently and, in particular, consider taxing more of the share-based rewards arising from employment, and of the accumulated retained earnings in smaller companies, at Income Tax rates.
  • Reduce the Annual Exempt Amount.
  • Reform the current chattels exemption by introducing a broader exemption for personal effects, formalising administrative arrangements, require investment managers to report CGT information to HMRC and taxpayers.
  • Remove the Capital Gains (CG) uplift on death, and instead provide that the recipient is treated as acquiring the assets at the historic base cost of the person who has died.
  • Remove the CG uplift on death more widely, and instead provide that the person inheriting the asset is treated as acquiring the assets at the historic base cost of the person who has died.
  • Rebase all assets, perhaps to the year 2000, consider extending Gift Holdover Relief to a broader range of assets.
  • Replace Business Asset Disposal Relief with a relief more focused on retirement.
  • Abolish Investors’ Relief.

The Government is likely to take heed of at least some of these recommendations, meaning that proceeds to owners from future business sales could be adversely affected if such transactions are not completed before the changes are enforced.

If you would like to discuss the options available and considerations in preparing your business for exit, please contact a member of the team.