Review into CGT is far from 'standard' says tax expert

Out-Law News | 20 Jul 2020 | 3:06 pm | 2 min. read

The UK government's review into capital gains tax (CGT) is not 'standard' and may be used to help fill the deficit created by the coronavirus support measures, amidst manifesto pledges against raising income tax, National insurance or VAT, an expert has said.

Tax expert Christine Yuill of Pinsent Masons, the law firm behind Out-Law, was commenting on last week's announcement of a review of CGT by the Office of Tax Simplification (OTS). The OTS's brief includes: identifying opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour and do not meet their policy intent.

"Any proposals from the OTS on the regime of allowances, exemptions, reliefs and treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income," will be of interest, according to the chancellor's letter to the OTS requesting the review.

Yuill said: "Assuming that the government is looking at how to increase its tax take from CGT, there are three main options available – increase rates, possibly to align with income tax rates, as was previously the case; reduce allowances or to tax things currently exempt such as private residences or cars, or introducing a different way of taxing, such as a wealth tax, although I would consider this to be unlikely," said Yuill.

Yuill Christine

Christine Yuill


The review could lead to the sale of assets earlier rather than later in order to give taxpayers certainty as to the CGT treatment.

Pinsent Masons tax expert Peter Morley said: “Chancellor Rishi Sunak has given the OTS a wide brief for this review so nothing is off the table. The review will cover everything from the overall scope of the tax to administrative matters.”

“The number of people who pay CGT in the UK is relatively low at 281,000 in 2017/18, therefore politically increases to CGT only affect a small number of people, with whom most of the voting public have limited sympathy," Morley said.

"It is possible that the OTS will look at other recent changes as a guide to recommendations. For example, non resident CGT for property disposals is already raising revenue. Imposing CGT on non resident holdings on for example shares in UK companies would potentially be a big revenue boost, but it also might turn people away from investing in the UK," said Morley. "Another measure that could be extended is to follow the recent introduction of a 30 day period for paying CGT on disposals of second homes. Accelerating the payment date of CGT more generally would not increase the overall tax take, but would provide a welcome boost to the Treasury’s coffers in the short term,” said Morley

Yuill said: "Whatever the exact motivation for the review, it cannot be ignored that increasing CGT is one option through which the chancellor can find income. Consequently, the review may influence behaviours and could lead to the sale of assets earlier rather than later in order to give taxpayers certainty as to the CGT treatment, it being unlikely that any change would lead to a reduction in rates, though market forces will ultimately dictate whether assets can or should be sold in the short term."