The Chancellor Rishi Sunak has commissioned a review of capital gains tax, sparking fears the duty’s historically low rates will be increased to help plug the £300bn whole in public expenditure caused by coronavirus.
He has asked the Office of Tax Simplification to conduct the review, which will assess whether the current rates are fit for purpose. It will also consider how certain reliefs and exemptions could be simplified or scrapped – including the exemption from the 28pc levy that applies to people selling their homes.
The Chancellor said he was particularly interested in how gains are taxed compared to other types of income and has asked that the review consider how CGT interacts with other taxes including inheritance tax.
It follows last week’s summer budget and the announcement of a number of tax cuts costing £30bn, including a stamp duty holiday for homeowners and a temporary scrapping of VAT for some of the economy’s worst hit sectors.
But experts say some tax rises will be inevitable, as the Chancellor attempts to raise funds to pay for his £30bn furlough scheme and other bailout programmes, as well as making up for lost tax revenue as the economy veers into recession. The Office for Budget Responsibility today updated its economic forecast, putting the year’s budget deficit at £322bn.
George Bull of tax firm RSK UK said the Government did not have time to create new taxes and would have to work quickly within the existing regime to raise funds at the same time as dealing with the Covid-19 pandemic and Brexit.
“We know Mr Sunak is very keen on ‘levelling up’ and I suspect he will be looking closely at wealthy individuals taking advantage of the lower rates of tax from selling assets such as investment portfolios most of us don’t have access to, instead of drawing income in the typical way and paying at the higher marginal rate,” he said.
He said this could mean an increase in the rates of CGT for higher earners and added the 10pc Entrepreneurs Relief rate, which applies to those selling shares in their own firms, could be scrapped.
A review of the “appropriateness” of the relief was included in the Conservative party manifesto during Boris Johnson’s election campaign.
Mr Bull said the review may also look at the so-called “CGT uplift”, a reference to the fact tax liabilities for gains expire when an individual dies, which can in some cases lead to instances of zero taxation where breaks on inheritance duties are also used.
CGT is charged at 28pc on residential property and 20pc on other assets such as listed investments, although a lower 10pc rate can apply to smaller gains. Rates were cut under the Government of Gordon Brown and again under former Chancellor George Osborne, falling to record lows. Rates were previously raised in line with income tax under Margaret Thatcher.
Almost 300,000 people paid the levy in 2017-18, according to the latest figures from HM Revenue & Customs, generating just under £60bn in revenue. Income tax by comparison generates more than £800bn and is the Government’s single largest source of revenue.
The OTS has put out a call to evidence to gather information for the review, which ends in October.