Prior to the Budget on 3 March, there was considerable speculation about possible changes to the Capital Gains Tax (CGT) regime. The speculation began in July 2020, when the Office of Tax Simplification (OTS) was asked by the Chancellor to review CGT and identify opportunities relating to technical and administrative CGT issues as well as the distortions it could cause in taxpayer behaviour. The first of its two reports was published in November 2020.

The options the OTS recommended to the government at that time included:

  • consider more closely aligning Capital Gains Tax rates with Income Tax rates by
    • reintroducing a form of relief for inflationary gains,
    • considering the interactions with the tax position of companies, and
    • allowing a more flexible use of capital losses
  • consider addressing boundary issues between Capital Gains Tax and Income Tax looking at
    • whether employees and owner-managers’ rewards from personal labour (as distinct from capital investment) are treated consistently and, in particular
    • consider taxing more of the share-based rewards arising from employment, and of the accumulated retained earnings in smaller companies, at Income Tax rates
  • to make tax liabilities easier to understand and predict, the government should consider reducing the number of Capital Gains Tax rates and the extent to which liabilities depend on the level of a taxpayer’s income

The second OTS report was expected “early” this year, but as yet it has not been published. Many commentators fully expected announcements in the Budget, but there was no mention of it. Conspicuous by its absence, our tax and corporate finance teams both believe that CGT announcements may be made at the Autumn Statement.

Richard Coombs, tax partner at Bates Weston comments:

“The silence on Capital Gains Tax at the Budget spoke volumes and we continue to anticipate changes. We would encourage business owners considering a sale, investors in buy to let, second homes or listed shares outside of pension or ISA wrappers and employees participating in share schemes, to talk to us about their plans to realise any gains as soon as possible.”

If you have any queries about the issues raised in this week’s email, please do get in touch.