Tax
Advisors Frown On Proposed UK Capital Gains Tax Changes

Proposals to "simplify" the CGT regime in the UK are giving some private client advisors heartburn over concerns that - as all too-often can be the case - the move will mean that the tax net widens. An organisation advising the Treasury has advocated a range of changes to the CGT system.
Proposed reforms to the UK’s capital gains tax system have come
under fire after claims that they could triple the number of
people who pay it.
Yesterday the Office of Tax Simplification – a body advising the
government on tax – called for a rise in rates and cuts to
personal allowances. The recommendations come at a time when
financial service industry figures fear that the UK will hit
savers to help pay for the debt caused by the global
pandemic.
Rishi Sunak, Chancellor of the Exchequer, has the unenviable task
of trying to raise revenue to curb debt without at the same time
choking off any economic recovery as and when lockdowns end. The
current CGT system, for example, operates so that if a person is
a higher rate taxpayer, they pay 28 per cent on gains from
residential property and 20 per cent on gains from other
chargeable assets. A number of annual allowances apply. Over the
years, governments have tweaked rates and allowances, often with
the ostensible aim of fostering entrepreneurship, such as among
start-ups and small businesses.
Tax and advisory firm Blick Rothenberg
said the OTS proposals were “dangerous”.
“The standout headline is the proposal to simplify CGT by
aligning it to income tax rates. Is this really simplification,
when the income tax system itself is complicated with various
spikes and cliff edges in play? This is just a roundabout way of
presenting an increase to CGT,” Nimesh Shah, chief executive at
the firm, said. “I am disappointed by the conduct of the OTS in
its handling of this review, which only serves to increase the
tension around higher taxes, when it should be aimed at
simplification.”
“The OTS is straying into matters of tax policy rather than
recommendations on simplification. The proposals contained in the
report serve to complicate the existing CGT regime, rather than
simplify it. Some of the areas that would be open to
simplification, such as the computational aspects and operation
of certain reliefs (such as main residence relief), are not
considered in any detail,” Nimesh continued.
“The other [CGT] proposals include reducing the annual exemption,
abolishing Business Asset Disposal Relief (the £1 million
successor to Entrepreneurs’ Relief introduced in Rishi Sunak’s
first budget) and Investors’ Relief, as well as removing the
Capital Gains base cost uplift on certain assets upon inheritance
following a person’s death.
He added that latest government data showed that the Treasury
raised £9.6 billion from CGT in 2018/19 against capital gains of
£62.4 billion. He said takings from CGT represent only about 1.5
per cent of total receipts. Nimesh argued that the simplest CGT
regime would be a single flat rate – which is what operated in
2008/9 under the Labour government of the time – when the rate
was 18 per cent. At present, there are five different rates which
can apply.
One of the many media reports yesterday – from the Daily
Telegraph – claimed that if the OTC recommendations are
adopted, “hundreds of thousands of additional taxpayers paying
higher rates of tax on profits from selling investments and
second homes.”
“The direction of travel has already been to remove a generous
CGT regime with the lifetime allowance for entrepreneur’s relief
being reduced from £1 million to £10 million in March of this
year,” Rebecca Fisher, Partner in the private client team at law
firm Russell-Cooke, said.
“The recommendations do not come as a surprise. There is going to
be a big COVID-crisis bill to pay for and increasing CGT rates is
unlikely to have any significant impact upon opinion polls or
future elections. The Treasury is likely to consider the
recommendations as a ‘no-brainer’ although this must be balanced
with the possibility of individuals bringing down the shutters
and holding on to their assets. This would reduce overall tax
revenues because of the unattractive rates of capital gains tax
that may become payable.”
Rachael Griffin, tax and financial planning expert at Quilter,
the UK wealth manager, said: “In general the message is clear
from the government and the OTS. Use your allowances now or lose
them. Changes are on the horizon, and while it is not suitable
for everyone to change their financial plans because of mere
policy speculation, it is worth your while to review in light of
what will inevitably be a more harsh tax environment. Financial
advice is critical for anyone wrestling with all the different
rules and considering changes.”
Griffin said that the idea of bringing CGT in line with income
tax has been “touted for some time.” It would cause a significant
rise in tax paid by those subject to CGT.
“Other proposals, such as scrapping CGT uplift on death, have
far-reaching consequences and need to be considered carefully.
One of the biggest challenges of tinkering with the CGT system is
its interaction with several other parts of the tax system, in
particular inheritance tax, so many changes can be complex and
have knock-on consequences for other parts of the tax system,”
Griffin said.