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In a letter to the Office of Tax Simplification (OTS), HM Treasury confirms no change to Capital Gains Tax (CGT), for now.
Capital Gains Tax
For the past 18 months the OTS, on the instruction of Chancellor Rishi Sunak, has made recommendations to the government to simplify CGT.
The OTS recommendations included raising CGT rates closer to those for income tax, and lowering the CGT allowance.
But now HM Treasury, in a letter sent to the OTS, indicates that the recommendations are unlikely to be implemented any time soon.
The letter, written by Lucy Frazer, financial secretary to the Treasury commented on the review and how the Treasury was not planning to implement the recommended reforms just yet.
“As you rightly highlight in your first report, these reforms would involve a number of wider policy trade-offs and so careful thought must be given to the impact that they would have on taxpayers, as well as any additional administrative burden on HMRC.
“The Government will continue to keep the tax system under constant review to ensure it is simple and efficient. Your report is a valuable contribution to that process.”
Whilst the government has chosen not to undertake these reforms currently, they did welcome five recommendations around technical and administrative issues.
These included an agreement to extend the time divorcing and separating couples have, to transfer assets between them, without paying the levy.
Can landlords breathe easy?
CGT is tax paid on the profit of the sale of any additional home, and currently the rate of tax stands at 18% for basic rate taxpayers and 28% for those in the higher rate threshold.
There is an annual allowance of an initial £12,300, on which no CGT would be paid.
The OTS had called for CGT to increase in line with income tax rates, to 20% at the basic rate and 40% at the higher rate, while also lowering the initial amount exempt to just £2,000.
While the Treasury appears to have left these reforms out of their current approach, they have not been dismissed altogether.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown commented on the shelving of proposals for GCT:
“It’s a huge relief to see CGT reform proposals shelved, because while the tax is in dire need of simplification, doing it by ramping up the rates would have caused more problems than it solved.”
“There would have been huge unintended consequences of the proposed CGT changes, because people would have been artificially trapped holding assets they didn’t want – because the tax benefits of hanging onto them until they died would have been too good to lose. This would mean, for example, buy-to-let investors refusing to part with properties they don’t really want in an effort to avoid CGT, while first time buyers struggle to get on to the property ladder.”
This article is for information purposes only. Commercial Trust Limited is not qualified to give tax advice. Please consult a qualified tax specialist if you are unsure of any matters regarding tax.