Capital Gains Tax (CGT) is an interesting tax and a relatively new one as well. It was introduced in 1965 by the Labour Chancellor, James Callaghan,who went on to replace Harold Wilson as Prime Minister on 5 April 1976 for three years. He actually went on to live longer than any other British Prime Minister in history (a day short of 93 years) but whether this was due to his affection for CGT or not is open to debate.One of the primary drivers in putting the CGT legislation in place was the rapid growth in property values post World War 2. This led to property developers deliberately leaving office blocks empty to avoid higher taxes on rental income and establishing greater tax-free capital gains. This was simply not on.Of course CGT covers more than disposal of business property. The scope of this tax includes stocks & shares, residential property, land, business goodwill and other intangible assets, options and so forth. Even a right to future consideration of an asset is an asset in itself.
Successive Chancellors have tinkered with the rules. Even though most people will never pay this tax it seems to attract a lot of attention.
The list of changes is considerable. To touch on just a few… rebasing to 31 March 1982 was introduced in April 2008, various reliefs have been introduced and then dropped (deemed disposal at death, indexation, taper relief, retirement relief). Rates of charge have moved away from a flat rate to four distinct rates based on level of income and whether the asset involved is residential property or not. One recent change is the introduction of payment of tax on disposal of residential property within 30 days of completion.
All good fun but the Office of Tax Simplification (OTS) has now been involved by Rishi Sunak. Rishi is desperately short of money and needs some bright ideas. OTS has come up with a number:
- Greater alignment on rates of charge with no interdependence on income tax rates.
- Reduce the annual exempt amount from its present £12,300 to a much lower figure, and keep it moderate.
- Reform the chattels exemption
- Direct reporting of capital gains tax information via investment managers to taxpayers and HMRC to assist in compliance.
- Removal of the automatic uplift on death replacing this with the requirement that the recipient beneficiaries acquire any assets at the historic base cost of the person who died.
- Consider rebasing all assets, say to 31 March 2000. This would mean that any gain on assets held at 31 March 2000 would have to be calculated by reference to the March 2000 value and historic cost. The lower gain would then be chargeable or the lower loss would then be allowable with special rules if there is a gain by one method and a loss by the other.
- Introduce or extend gift holdover relief to a broader range of assets on the basis that this would make it easier for individuals to give assets away during their lifetime.
- Scrap business asset disposal relief (formerly entrepreneurs’ relief) in favour of a relief more focused on retirement.
- Scrap investors’ relief which no one seems to be very interested in anyway.
It is not an easy matter to consider a radical change to a particular tax when there are other pressing issues (Covid-19, Brexit) that are likely to remain on the table for some while. The government will no doubt take into account the fact that CGT brings in just over £8bn a year to the Exchequer and may be tempted to adopt only such recommendations that increase this figure rather than reform the whole framework of the tax. This would be a pity.
C & H Stedman are available to help with capital gains tax issues – whether current or pending.