NEWS & VIEWS
On 14th July, Rishi Sunak, the Chancellor, commissioned The Office of Tax Simplification to conduct a review of Capital Gains Tax and aspects of the taxation of chargeable gains, in relation to individuals and smaller businesses.
Now over half way through its consultation process, the OTS is expected to provide an interim update on the ‘bigger picture issues’ following the August first phase deadline. This initial phase sought to gather comments on the principles of CGT, including its scope and reach. The second phase, inviting feedback on the technical detail and practical operation of CGT, has a new extended deadline of 9th November. This change means that the final report is unlikely to be available until 2021.
At FSL, we are closely monitoring the review and external expert opinions on the possible outcomes. We are analysing the possible scenarios that include:
- Align CGT rates with income tax.
- Change/abolish annual exemptions including principal residence exemption.
- Return of indexation.
- Change to the use of losses (offsetting).
- Removing uplift upon death (currently the buy price is changed to the value at date of death). Covered by IHT but no CGT.
- Change to classifications of Offshore Funds, Deep Discounted Security rules, Corporate Actions, etc.
- Change to probate calculations.
One of the key areas stated within the scope of the review is the examination of whether the current CGT system distorts taxpayers investment decisions. The outcome of this could lead to a system that encourages long term investments over short term gains. This could lead to a CGT system that is similar to the US or a return to tapering based on time held.
In addition, we are evaluating the potential impact on CGiX of these changes. This includes the possibility of a mid-year implementation of new rules that would mean a client’s annual gains would need to be allocated to different CGT rules. Though unlikely, it is not unheard of and it was the case following the Finance Bill 2010 that introduced the new 28% rate for gains arising after 23rd June 2010 that were above the upper limit of the income tax basic rate band.
We hope that this preliminary work being conducted at FSL will ensure there is minimal disruption to CGiX users.
If you have any concerns about the impact of the review on CGiX or would like to discuss further then please contact: FSLBA&I@financialsoftware.co.uk