Craig Simpson, Tax Partner at Bates Weston considers whether an increase in Capital Gains Tax is on the way? In a letter to the Office of Tax Simplification (OTS)  on the 13 July 2020, the Chancellor of the Exchequer has asked for a Capital Gains Tax (CGT) review in relation to individuals and smaller businesses.

Whilst it is too early to predict what the outcome of the review might be, this could include a change to the Business Asset Disposal Relief regime (previously Entrepreneurs’ Relief), and possibly an alignment of capital gains to income tax.

The letter asks the OTS to report on any proposals on the regime of allowances, exemptions, reliefs and the treatment of losses and also asked for their view on the interaction of how gains are taxed compared to other types of income.

Craig comments:

“We know that the Chancellor is planning to review tax incentives to invest in small business. It is vital that there are incentives at the time of investment and also a reward for risk taking at the realisation of that investment. At a time when government borrowing is at record levels, it is perhaps not surprising that there is a review of capital gains tax, as the rates are low compared to higher rates of income tax.”

The review does not mean there will be changes to capital gains tax,  but it looks likely.

Craig added “It is a positive step to see the Chancellor consulting the OTS as the capital gains system has become over complex for entrepreneurs. On the flip side, an increase in the main rate of capital gains tax is possible. It is my view that there needs to be a distinction between earned income and passive capital gains.”

We will respond to the OTS call for evidence on the review and will be watching developments closely.

In the meantime, if you require our assistance with any aspect of tax planning, please do get in touch with Craig.