The Office of Tax Simplification made eleven proposals for the government to consider. The more significant were:
CGT rates should be more closely aligned with income tax rates, implying the maximum tax rate could rise to 45%.
The annual exempt amount, currently £12,300 of gains, should be reduced to a “true de minimis level” of between £2,000 and £4,000.
Summary of 11 recommendations are as below:
Rates and boundaries
1. If the government considers the simplification priority is to reduce distortions to behaviour, it should either:
• consider more closely aligning Capital Gains Tax rates with Income Tax rates, or
• consider addressing boundary issues as between Capital Gains Tax and
2. If the government considers more closely aligning Capital Gains Tax and
Income Tax rates it should also:
• consider reintroducing 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
3. If there remains a disparity between Capital Gains Tax and Income Tax rates and the government wishes the simplification priority is to make tax liabilities easier to understand and predict, it should consider reducing the number of Capital Gains Tax rates and the extent to which liabilities depend on the level of a taxpayer’s income.
4. If the government considers addressing Capital Gains Tax and Income Tax boundary issues, it should:
• 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.
The Annual Exempt Amount
5. If the government’s policy is that the Annual Exempt Amount is intended
mainly to operate as an administrative de minimis, it should consider reducing its level.
6. If the government does reduce the Annual Exempt Amount, it should do so in conjunction with:
• considering reforming the current chattels exemption by introducing a broader exemption for personal effects, with only specific categories of assets being taxable,
• formalising the administrative arrangements for the real time capital gains service, and linking up these returns to the Personal Tax Account,
• exploring requiring investment managers and others to report Capital Gains Tax information to taxpayers and HMRC, to make tax compliance easier for individuals.
7. Where a relief or exemption from Inheritance Tax applies, the government should consider removing the capital gains 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.
8. In addition, the government should consider removing the capital gains 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.
9. If the government does remove the capital gains uplift on death more widely, it should:
• consider a rebasing of all assets, perhaps to the year 2000, and
• consider extending Gift Holdover Relief to a broader range of assets.
10. The government should consider replacing Business Asset Disposal Relief with a relief more focused on retirement.
11. The government should abolish Investors’ Relief.