If you are applying for the fifth and final grant of the Self-Employment Income Support…
The Chancellor, Rishi Sunak, has commissioned the Office of Tax Simplification (OTS) to undertake a review into how Capital Gains Tax (CGT) is paid by small businesses and individuals.
It is estimated that the UK Government has already incurred hundreds of billions of pounds in costs in its economic fight against the Coronavirus and it is clear that it will need to recover this spending in some way.
The decision to commission a review of CGT has left many concerned of a ‘stealth wealth tax’, using CGT as a means of increasing the tax bill of small businesses and those with high-value assets.
The OTS investigation into CGT is said to be wide-ranging and will include a look at all of the allowances, exemptions and reliefs associated with CGT, the treatment of losses within the tax and its interaction with other levies, such as inheritance and income tax. This review will also look at whether current rules alter taxpayer’s behaviour and encourage inappropriate actions to be taken.
Many fear that the extensive free rein given to the OTS may be a precursor for big changes in a Budget later this year.
One suggestion is that the Chancellor may be seeking an equalisation of CGT and income tax rates. At present, the highest rate of CGT for most assets, apart from property, is 20 per cent, whereas the top rate of income tax is 45 per cent.
As an alternative, some have suggested that the Chancellor could seek a flat rate of CGT rather than the five rates that currently exist (0, 10, 18, 20 or 28 per cent).
The review may also look to close loopholes and ambiguities in existing reliefs to ensure that taxpayers do not get an advantage from structuring their estate and disposals around CGT.
Another area of potential reform is the capital gains uplift, which currently applies when a person inherits assets, which allows assets to be acquired at the market value on the date of death, rather than the amount originally paid.
This could tie in with the Government’s previous review of Inheritance Tax (IHT), during which the OTS recommended the uplift be removed in cases where IHT exemptions or reliefs apply.
IHT continues to be an area of contention and one that has been explored numerous times. However, it may also be in the spotlight as the Government seeks to recover the multi-billion-pound cost of COVID-19.
As part of the OTS investigation, Rishi Sunak has also tasked the OTS with looking at how CGT is paid by small businesses. This will include “the position of unincorporated businesses and standalone owner-managed trading or investment companies”.
It is important that all taxpayers continue to monitor the Government’s plans for taxation and seek advice if any future changes affect their financial affairs or the passing of wealth to future generations.