The Office of Tax Simplification (OTS) recently published its report on Capital Gains Tax, setting out a number of proposed changes to the levy. Corporate Tax Partner at Simmons Gainsford, Paul Twydell, has highlighted a series of the report’s key points which could have major implications in the future.
The OTS considers there to be too many rates of CGT and recommends removing some of them
The body recommends Investor Relief to be scrapped and that Business Asset Disposal Relief (formerly Entrepreneur’s relief) could be overhauled to a more retirement-only relief. If these recommendations are implemented this could see the end of the 10% tax rate.
The OTS recommends that CGT rates are more closely aligned with Income Tax rates
This is not a new position and has been commented on for many years which, in some cases, could see gains being taxed as high as 45%. However, the body has identified that if the rates were aligned, further reliefs should be put in place, such as a return of indexation to ensure inflation-only gains are not taxed at this level.
If CGT rates are not aligned with Income Tax rates, the OTS has proposed that certain matters currently treated as subject to capital gains to be charged wholly or in part to Income Tax
One potentially radical example would be that on the liquidation or sale of a company HMRC could tax some or all of the retained earnings remaining in the business at dividend rates. The body’s justification for such a change is to make the treatment of cash taken out of the business during and at the end of its life more neutral. If implemented, this would represent a significant change.
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What next?
It is important to remember that the OTS is merely an advisory body which makes recommendations for the government to consider. It does not implement changes – these are a matter for Government and for Parliament. However, the timing of the release of the report is intriguing where there is no Autumn Budget. We do not expect significant tax legislation to be introduced until Spring 2021 at the earliest.
If you would like to discuss the issues raised in the report in any further detail or have any concerns as to the future of Capital Gains Tax, please contact Paul Twydell.
Paul Twydell leads our Corporate Tax team and can be contacted on Paul.Twydell@sgllp.co.uk
Simmons Gainsford is a leading Chartered Accountancy and Business Advisory firm established over 70 years ago. Based in Uckfield, we are entrepreneur enthusiasts, working with businesses and individuals to achieve financial success and security. mail@sgllp.co.uk / 01825 746 888