Capital Gains Tax could be overhauled
A Chancellor-commissioned report has recommended a major overhaul of Capital Gains Tax (CGT).
The maximum CGT of 28% could be raised closer to income tax rates, which get as high as 40% and 45% in England and Wales.
The report from the Office of Tax Simplication said the disparity in rates between Capital Gains Tax and Income Tax can distort business and family decision-making and incentivise people to re-characterise income as capital gains.
Bill Dodwell, tax director, Office of Tax Simplification, said: “If the government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning Capital Gains Tax rates with Income Tax rates, or addressing boundary issues as between Capital Gains Tax and Income Tax.”
The review also suggested scrapping the “capital gains uplift”, which enables beneficiaries to inherit an asset at market value on the date of death rather than the value on the date of purchase.
The report said CGT incentivises owners to transfer business and personal assets to others on death rather than during their lifetime. This may not be best for the business, the individuals or families involved, or the wider economy.
Chancellor Rishi Sunak is said to be desperate to raise money to pay for the Covid-19 crisis, while he commissioned the review in July.
Timothy Douglas, policy and campaigns manager, ARLA Propertymark, said: “Letting agents and their landlords play a key role in maintaining a strong and thriving private rented sector.
“To this end, the current system of Capital Gains Tax does not paint the full picture of costs and responsibilities.
“Given recent changes to mortgage interest relief, the wear and tear allowance, and the ongoing impact of Covid-19, the UK Government must tread carefully with any plans to change Capital Gains Tax as this could dramatically reduce the supply of rental properties.”