Capital Gains Tax Review: Clawback Proposals

The Office of Tax Simplification (OTS), an independent adviser to the Government, has been asked by Chancellor, Rishi Sunak to review Capital Gains Tax (CGT) to identify any potential administrative and technical issues and need for reform.

It is inevitable that taxes will have to rise to meet the cost of supporting the British economy through the COVID-19 pandemic, and this review is likely to use CGT as a way of increasing revenue for the Government.

We expect the report, to be released in early 2021, to make the following recommendations:

1. to change the CGT rates to align them with Income Tax rates
2. to reduce the number of CGT rates, and the extent to which liabilities depend on the level of income of the taxpayers
3. to consider reducing the Annual Exempt Amount
4. to remove the capital gains uplift on death if a relief or exemption from Inheritance Tax is applicable, and to treat the recipient as acquiring the deceased’s assets at the historic base cost
5. to replace the Business Asset Disposal Relief with a relief more focused on retirement
6. to remove relief for investors selling shares in unlisted companies if they have owned them for a minimum of three years.

Whilst the Government has commissioned the report, it is not obligated to accept its findings but, at some point, it will have to turn its attention to how to cover the cost of the pandemic.

We expect that clients will be considering accelerating their restructuring or exit strategy in preparation of the increase in tax rates in the near future.

If you have a question, please do not hesitate to contact James Cohen directly on [email protected] or 0207 822 2257.

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