• The Office for Tax Simplification has published a report on simplifying capital gains tax rates, including conditional proposals to align capital gains tax rates with income tax rates, and to cut the annual amount of gains which are free from CGT.
• This report was commissioned by the Chancellor, and while most of its proposals are conditional on desired policy outcomes, the state of the public finances suggest that capital gains are very much in the fiscal firing line.
Laith Khalaf, financial analyst, AJ Bell:
“Investors should now be on high alert for a tax raid on capital gains. The OTS has teed the Chancellor up to boost Treasury revenues by raising capital gains tax and we know how creaky government finances are after it’s thrown the kitchen sink at the pandemic.
“If a coronavirus vaccine starts to alleviate health concerns next year, the government’s attention will quickly turn to repairing the huge hole in its budget and CGT looks like it’s very much in the crosshairs. The Chancellor ordered this review of capital tax and while recommendations are conditional rather than categoric, it seems like change is afoot, possibly in a spring Budget.
“If CGT rates are increased, there could be a fire sale of assets as investors sitting on big gains seek to take advantage of current rates before any deadline for transition. Investors would also likely flock to pensions and ISAs, where gains are not subject to capital gains tax.
“There is still the question of whether this will prove politically palatable, as this isn’t the kind of policy a Conservative government would typically like to bring in. But then these are extraordinary times and the government has shown it’s willing to do all sorts of things which aren’t compatible with traditional Tory values of fiscal caution and light touch government. Allegiance to lower taxation is also likely to prove a casualty of the pandemic.
“Looking at just how much money the government needs to recoup as a result of coronavirus, CGT is likely to be the thin end of the wedge, because it won’t balance the books on its own. Pfizer’s vaccine has given us a glimpse of life after the pandemic, but along with that hopeful outlook, we should prepare for tax rises too.”
