Is CGT in the Chancellor’s sights?

17 July: The Chancellor has asked the Office of Tax Simplification (OTS ) to carry out a review of CGT to identify simplification opportunities. ICAEW’s Tax Faculty is seeking the views of members.

In a return to business as usual activity for HM Treasury (HMT), the Chancellor has asked the OTS to review capital gains tax (CGT) to identify simplification opportunities.

Given the current state of the public finances it would be naïve to think that the need to raise revenue is not also on HMT’s agenda.  The scope of the review extends to “areas where present rules can distort behaviour or do not meet their policy intent”.

The call for evidence is in two stages:

• the first stage seeks high-level comments on the principles of CGT, by 10 August 2020; and
• the second and main stage   invites more detailed comments on the technical detail and practical operation of CGT, by 12 October 2020.

The OTS has published a short survey to encourage feedback from individuals.

The Tax Faculty would welcome members’ views, initially on the principles of CGT and whether its scope and reach, in the context of the wider tax system, continue to be appropriate.

Please join the debate and email your comments on the call for evidence to caroline.miskin@icaew.com.

The specific themes identified in the principles section of the call for evidence are:

• Allowances, including the annual exempt amount – its level and the extent to which it distorts decision making.
• Exemptions and reliefs, including how they fit together and the extent to which they incentivise some decisions over others.
• The treatment of losses within CGT, including the extent to which they can be used and whether the loss regime distorts decisions about when to buy or sell assets.
• The interactions of how gains are taxed compared to other types of income, including how the boundary between what is taxed as gains rather than income works. Should there be different regimes for short‐term gains, compared to long‐term gains?

It is also worth noting that earlier this year, the National Audit Office published its report, The management of tax expenditures. Tax expenditures are better described as a type of tax relief. Some of these reliefs simply reflect a policy choice by ministers while others are designed to incentivise behaviour. Examples include tax credits for companies’ research and development costs and income tax relief on pension contributions. Some CGT reliefs are tax expenditures and include business asset disposal relief.

The report notes: “In 2017, HM Treasury piloted monitoring of tax expenditures, prioritising those with specific policy objectives worth more than £40m a year. By 2019 it had informally assessed whether 63 tax reliefs were value for money, as part of its policy-making process. The exchequer departments’ monitoring processes are still in development, and not yet integrated with one another.”

Please join the debate and email your comments on the call for evidence to caroline.miskin@icaew.com.