CGT review – have your say
By Susan Cattell, Head of Tax Technical Policy
23 July 2020
ICAS will be responding to the Office of Tax Simplification’s review of Capital Gains Tax - send us your views on the questions posed by the OTS.
Why is the OTS carrying out a review of CGT?
The Chancellor, Rishi Sunak, asked the OTS to undertake a review of Capital Gains Tax and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses. The Chancellor requested that the OTS identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.
The review will consider administrative and technical issues affecting individuals, partnerships, and unincorporated or single entity owner-managed companies. It will also look at areas where the present rules can distort behaviour or do not meet their policy intent.
The OTS has divided its work into two stages, set out in its call for evidence and summarised below.
Principles of CGT – first stage of the review
The OTS is initially interested in receiving high level comments on the principles of CGT by 10 August 2020. These comments will help to shape the balance of the work.
The OTS notes that the 2011 Mirrlees review raised some fundamental questions about the nature of CGT. It questioned whether the government should continue with different rates of tax for different types of income, including income derived through capital gains (after allowing for a given rate of return). It also considered whether there should be different treatment for capital gains realised in life and for those gains realised on death.
Against this background the OTS would like views on whether the scope and reach of CGT, in the context of the wider tax system, continue to be appropriate. Respondents are encouraged to ‘think broadly’ but particularly to consider some themes identified by the Chancellor, including:
- 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; and
- The interaction between taxation of gains and taxation of other types of income, including the boundary between the two. Should there be different regimes for short‐term gains, compared to long‐term gains?
Main call for evidence – second stage of the review
In the second stage of the review the OTS invites more detailed comments on the technical detail and practical operation of CGT – to be submitted by 12 October 2020. The aim is to explore simplification opportunities across the following areas:
- the overall scope of the tax and the various rates which can apply
- the reliefs, exemptions and allowances which can apply, and the treatment of losses
- the annual exempt amount and its interactions with other reliefs
- the position of individuals, partnerships and estates in administration
- the position of unincorporated businesses (including setting up, selling and winding up)
- the position of stand‐alone owner‐managed trading or investment companies
- any distortions to taxpayers’ personal or business investment decisions
- interactions with other parts of the tax system such as Income Tax, Capital Allowances, Stamp Duty Land Tax and Inheritance Tax
Suggestions could include ideas on how to rationalise processes, improve guidance, harmonise definitions or make the framework or workings of the tax easier or more intuitive to understand. Ideally the OTS would like to see practical real-life examples to illustrate any broader points.
The OTS has also set out detailed questions respondents may want to address, on a range of issues including:
- Annual exempt amount
- CGT rates
- Principal private residence relief
- Chattels exemption
- Reliefs available to business owners/shareholders
- Administration – payments, reporting, claims, valuations and record-keeping
- Interaction with other taxes.
What is excluded?
The focus of the review is on smaller businesses and individuals. The OTS comments that it will not be considering issues specific to corporate groups, such as substantial shareholding exemption, company reorganisations or demergers. The review will also not be considering trusts or residence and domicile issues.
Have your say
ICAS will be responding to the review and hopes to meet with the OTS - send us your thoughts on the principles of CGT or on any of the questions posed by the OTS by emailing tax@icas.com.